Capito Introduces National Flood Insurance Program Reauthorization Bill
Legislation will reduce insurance costs following natural disasters like 2016 floods in West Virginia
WASHINGTON, D.C. — U.S. Senators Shelley Moore Capito (R-W.Va.), Bill Cassidy, MD (R-La.) and Kristen Gillibrand (D-N.Y.) introduced legislation to reauthorize the National Flood Insurance Program (NFIP) for 10 years. The NFIP is currently set to expire on September 30, 2017.
“Almost one year later, West Virginia continues to pick up the pieces from the devastating flood that ripped through our state,” Senator Capito said. “The National Flood Insurance Program is important for communities that have experienced severe flood damage like those in West Virginia. This legislation will eliminate uncertainty for residents by reauthorizing the program for another decade, and I am proud to support a bipartisan bill that will help provide West Virginians with affordable protection needed in case of a natural disaster.”
Last June’s flooding in West Virginia damaged thousands of homes and businesses, and nearly 90 percent were not covered by flood insurance. Currently, flood insurance is too expensive for many West Virginians to afford. Additionally, many of the impacted communities were already facing economic challenges making the cost of rebuilding structures difficult for many business owners and families. This legislation will help reduce the individual insurance costs of the NFIP and provides funding for mapping flood zones, and affordable protection for West Virginia homes and businesses vulnerable to future natural disasters.
“This is a product of listening to those affected, finding from stakeholders those policies that would address affordability and sustainability within the NFIP,” said Dr. Cassidy. “The goal of this bipartisan bill is to bring peace of mind for Louisiana families, and for all American families, seeking to buy flood insurance.”
“Millions of New Yorkers rely on the National Flood Insurance Program to protect their property when a flood occurs,” said Senator Gillibrand. “After Superstorm Sandy hit New York, this program failed too many families who had paid their premiums and were relying on their insurance to rebuild. We cannot turn our backs and let this happen again. This bipartisan bill would help ensure that flood insurance is more affordable and not riddled with the loopholes that left homeowners on their own fighting with insurance companies while trying to recover from the devastation. I am proud to lead this fight with Senator Cassidy, and I will continue to do everything I can to stand with New York homeowners.”
This legislation reforms the National Flood Insurance Program by:
Enhancing Flood Insurance Affordability and Accessibility
- Provides Greater Investment in Flood Mitigation & Resiliency. FEMA will be required to reallocate the existing surcharges established under P.L. 113-89 to better finance the Flood Mitigation Assistance Program. Such an adjustment to existing fees would yield approximately $400 million annually for flood mitigation activities.
- Strengthens the Affordability Standard Disclosure. To ensure continued purchase of flood insurance policies in higher risk areas, federal administrators of the NFIP must identify policyholders with premiums in excess of the one percent of coverage limitation at the county/parish and state levels.
- Modernizes Increased Cost of Compliance (ICC) Coverage. Currently, ICC claims payments must be used to fund up to $30,000 in compliance costs associated with State or local floodplain management laws or ordinances, which typically require structure elevation. The limit of $30,000 is inadequate to elevate most structures. FEMA shall increase ICC coverage to $75,000 with 100% of ICC payments allowed to occur outside traditional policy limits. FEMA shall also expand eligibility items to be paid under ICC to be substantially similar to eligible items under other FEMA mitigation grant programs.
- Provides Premium Credits to Offset the Cost of Obtaining an Elevation Certificate. Offers policyholders without an elevation certificate, a one-time rate credit of up to $500 for the cost of obtaining elevation data. Knowledge of flood risk and accuracy of a structure’s base flood elevation information will be enhanced by removing or reducing the financial barrier associated with the acquisition of elevation certificates.
- Facilitates Mitigation Credits that Reduce Premium Rates. FEMA will develop meaningful cost reductions, in excess of 10% of the current risk premium rate for a property, for flood mitigation activities undertaken on properties in all zones, including moderate risk zones. Flood mitigation activities shall be defined by the Administrator and include elevation of mechanical systems and recommendations identified in FEMA Mitigation Assessment Team reports.
- Provides Affordability Vouchers to Offset the Cost of Flood Insurance. For certain policyholders, owner-occupied households for which flood insurance premiums and fees would result in housing costs exceeding 40 percent of household income, affordability vouchers shall be available to offset premium costs exceeding the 40% housing cost threshold. For policyholders with household incomes below 80% of area medium income, affordability vouchers are available for portions of the flood insurance premium that exceed 1% of the policy coverage limit.
- Modernizes coverage limits to align with actual replacement costs of residential and non-residential structures. Increases coverage limits from $250,000 to approximately $500,000 for residential structures and $500,000 to approximately $1,000,000 for multifamily and businesses structures to mitigate financial loss and enhance coverage for the replacement value of structures in competitive property markets. Instead of making a one-time increase, the coverage limits would track the Federal National Mortgage Association (Fannie Mae) confirmation loan limits for single-family dwellings. The legislation establishes a “baseline amount” that tracks the Fannie Mae conforming loan limit. As the Fannie Mae limit increases, so would coverage limits; thus providing a long term solution for housing market changes.
- Creates an Agreed Value Insurance Pilot option for insureds in addition to the traditional stochastic model used to quantify flood loss in monetary terms. FEMA will establish a pilot program that adopts a financial model for flood risk exposures. Insurance contract prices based on exceedance probabilities of dollar loss levels with a parametric trigger (e.g., indexed to flood/water gauges) used as an alternative to direct loss measurement and site-by-site examination of actual loss could dramatically decrease the cost of flood insurance without jeopardizing the solvency of the National Flood Insurance Program. The Agreed Value Insurance Policy uses FEMA’s existing water depth probability that waters will reach or exceed a given depth of a structure relative to Base Flood Elevation. Savings to the policyholder is achieved by pre-determining the amount paid out in claims (avoiding costly overhead expenditures) according to the depth of water damage to a structure.
Enhancing National Flood Insurance Program Solvency and Sustainability
- Clarifies FEMA’s authority to cede NFIP risk in the capital markets through Insurance-Linked Securities (ILS). Stipulates that the FEMA Administrator shall annually cede a portion of the flood insurance program’s risk to the private reinsurance and/or capital markets at rates and on terms determined by the Administrator to be reasonable and appropriate, in an amount sufficient to maintain the ability of the program to pay claims and limit the program’s exposure to potential catastrophic losses from extreme events.
- Provides Access to NFIP Claims Data. The NFIP maintains decades of claims data for millions of structures in lower to higher flood risk zones. FEMA shall study the feasibility of selling or licensing the use of anonymized historical claims data to non-governmental entities. Upon completion of a feasibility study 12 months after the passage of this Act, the FEMA administrator is authorized to sell or license historical claims data and promulgate rules necessary to implement such transactions. Proceeds from sale or license transactions shall be deposited into the National Flood Insurance Fund.
- Preserves Funding of NFIP Flood Mapping and Mitigation Activities. In an effort to sustain funding for flood mapping, mitigation and flood management activities; the NFIP federal policy fee will carry over to private flood insurance policies where such fees finance a public activity that holistically benefits the flood insurance market.
Providing Private Market Access, Accountability and Competition
- Removes Barriers to Privatization. Additional entrance of private insurers into the flood insurance market can offer homeowners more choices, competitive products and administrative efficiencies yielding lower premiums. Such market entrance by private insurers should preserve the availability and affordability of flood insurance coverage for all consumers while continuing the investment in floodplain mapping and management.
- Preserves “Grandfathering” through Continuous Coverage. Allows NFIP policyholders to purchase a private flood insurance policy and switch back to NFIP coverage without losing continuous coverage or grandfathering status.
- Facilitates Private Market Participation by Write Your Own Companies. Gradually phases-in private coverage by initially expanding eligibility, over a two year period, to certain risk classifications (i.e. business properties, second homes, and severe repetitive loss properties). The Biggert-Waters Act (P.L. 112-141) has set an aggressive rate adjustment trajectory for these risk categories where full actuarial rates will be realized in a compressed timeline. In addition, the Homeowner Flood Insurance Affordability Act (P.L. 113-89) assessed a $250 surcharge on nonresidential and secondary home properties; creating space for a WYO private insurer to offer a competitive flood insurance product. After two years and upon completion of a study measuring the risk classification underwritten by participating WYO companies, the FEMA Administrator is authorized to limit or expand the participation of WYO companies in the broader flood insurance marketplace.
- Creates a Pilot Risk-Sharing Program with Write Your Own Companies. Instructs the FEMA Administrator to engage in NFIP risk-sharing pilot programs where WYO companies or other qualified insurers assume a first-loss position of claims at or below $50,000 and the NFIP operating in a secondary loss position for all structures encompassed in such pilot programs at the determination of the Administrator.
Modernizing Flood Mapping and Flood Risk Accuracy
- Reauthorizes the National Flood Mapping Program. With nearly 3 million miles of unidentified flood hazard areas; along with the need to update and accurately assess risk of existing flood zones; the National Flood Mapping Program shall be reauthorized at a funding level of $500 million annually.
- Provides Mapping Standards and Guidelines for Nongovernmental Entities. Allows localities to elect to develop their own alternatives to NFIP flood maps. FEMA and the Technical Mapping Advisory Council (TMAC) shall provide map standards for flood maps developed by communities, subject to approval by FEMA, thereby giving communities additional avenues to streamline the FEMA mapping process and develop maps that use updated community data & technology.
- Encourages the Use of High-Resolution Mapping Technology. Instructs FEMA to facilitate, partner, and leverage current high resolution topographic data (e.g., Light Detection and Ranging [LiDAR] data, or other new and emerging technologies) in the development of flood insurance rate maps.
- Improves the Flood Mapping of Levee-Protected Areas. FEMA shall replace its “Zone D” designation (defined as an area of undetermined/undefined risk) in levee-protected areas with risk zones that are more appropriate for the level of protection that the flood mitigation features affords. Often, premiums in Zone D are higher than in low/moderate risk zones. Low/moderate risk shall be assigned to the new zone until actuarial rates are promulgated.
Enhancing National Flood Insurance Program Transparency and Accountability
- Institutes Deadlines for NFIP Claims Determinations. Requires NFIP administrators to make determinations on flood claims within 30 days of the initial filing, followed by any payment owed under the claim. Prevents claims denial based on Proof of Loss requirements. Establishes notice of a claim deadline within 60 days and moves the proof of loss deadline to 180 days.
- Increases Transparency for Engineering Reports and other Claims Document. Requires FEMA to transmit final engineering reports to the policyholder and prohibits anyone other than the individual responsible for the report to make alterations.
- Increases Statute of Limitations for Disputed Claim Payments. Extends the Statute of Limitations for individuals to seek a judicial remedy for a disputed claim payment or a denial of a claim or appeal to 2 years after the flood event or 90 days after the claim is denied, whichever is later.
- Increases Accountability of NFIP Contractors. Gives FEMA greater authority to oversee contractors and litigation costs arising from NFIP claims in order to protect against fraud and excessive billing by companies. It also ensures that NFIP contractors are not shielded from civil liability when they commit fraud.
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