{"id":1037,"date":"2017-09-21T10:17:31","date_gmt":"2017-09-21T15:17:31","guid":{"rendered":"http:\/\/blogs.luc.edu\/compliance\/?p=1037"},"modified":"2017-09-21T10:17:31","modified_gmt":"2017-09-21T15:17:31","slug":"hurricanes-harvey-and-irma-add-urgency-to-congressional-flood-insurance-reform-effort","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=1037","title":{"rendered":"Hurricanes Harvey and Irma Add Urgency to Congressional Flood Insurance Reform Effort"},"content":{"rendered":"

Richard W. Shepherd
\nAssociate Editor
\nLoyola University Chicago School of Law, JD 2019<\/em><\/p>\n

 <\/p>\n

In 2016, Congress introduced a bill to reform the National Flood Insurance Program.\u00a0 Proponents of the bill saw it as necessary reform to a debt-ridden and ineffective program, while opponents saw it as an attack against a necessary safeguard for coastal Americans. The National Flood Insurance Program was set to expire at the end of September 2017, until Congress extended the program through December 8, 2017.\u00a0 As Americans rebuild from Hurricanes Harvey and Irma, Congress contemplates reform and seeks to keep the program funded past December.<\/p>\n

<\/p>\n

The National Flood Insurance Program<\/strong><\/p>\n

The National Flood Insurance Program<\/a> (NFIP) was established by the National Flood Insurance Act of 1968 (NFIA, 42 U.S.C. \u00a74001 et seq.).\u00a0 The program was most recently updated in 2012 under the Biggert-Waters Flood Insurance Reform Act.<\/p>\n

The NFIP<\/a> was established both to subsidize flood insurance on properties with significant flood risk and to reduce flood risk through the adoption of floodplain management standards.\u00a0 Communities that participate in the program have access to federal flood insurance, and in return they must comply with federal minimum standards.<\/p>\n

The Federal Emergency Management Agency (FEMA) maintains a process called Risk MAP, which produces Flood Insurance Rate Maps<\/a> (FIRMs).\u00a0 FIRMs designate Special Flood Hazard Areas (SFHAs). SFHAs are areas which are exposed to a 1% or greater risk of annual flooding.\u00a0 Participating communities are required to adopt flood maps and regulate development in the SFHAs.\u00a0 Communities with higher standards of compliance enjoy reduced premium rates on flood insurance through the Community Ratings System.<\/p>\n

The NFIP<\/a> offers various flood insurance policies, with maximum coverage limits set by law.\u00a0 The current coverage limits are $250,000 for a residential building, and $500,000 for a commercial building or residential property for five or more families.\u00a0 Any federal agency which originates, guarantees, or purchases mortgages must require the property owner to purchase flood insurance.\u00a0 Further, federally regulated lenders must comply with the NFIP.\u00a0 Before originating a loan secured by a residential, nonresidential, or mobile home, the lender must determine whether or not the structure is located in a SFHA and if flood insurance is available under the federal program.\u00a0 Lenders must document the flood determination using FEMA\u2019s Standard Flood Hazard Determination Form (SFHDF) and maintain the form through the life of the loan.\u00a0 If the structure securing the loan is located in a SFHA, the lender must notify the borrower of the flood insurance requirement.\u00a0 The borrower must sign the notice and purchase flood insurance. \u00a0If the borrower does not respond within 45 days, or is unwilling to purchase coverage, the lender must force-place an insurance policy on the property.\u00a0 If at any time during the life of the loan the property is uninsured, or if the coverage is less than the required minimums, the lender must force-place coverage.<\/p>\n

As of August 2016, there were 5 million flood insurance policies in-place under the federal program.\u00a0 Congress has authorized the NFIP to borrow $30.425 billion, and the program is currently<\/a> $24.6 billion in debt.\u00a0 If the program is not renewed by Congress by the end of December, the borrowing authority will drop to $1 billion. Further, the NFIP would lose the authority to provide new insurance contracts, and policies in-place would expire after a year.<\/p>\n

Proposed reform<\/strong><\/p>\n

The devastation of Hurricanes Harvey and Irma add urgency<\/a> to an effort to reform the NFIP, which had largely stalled in Congress.\u00a0 The reform efforts centered around modernizing the program and moving the insurance policies towards private insurers.<\/p>\n

The NFIP had mostly remained solvent until Hurricanes Katrina and Rita in 2005, and Superstorm Sandy in 2012, left the program $24.6 billion in debt.\u00a0 By 2015, the Republican-controlled House Financial Services Committee (HFSC) began writing new legislation to reform the NFIP.\u00a0 In March 2016<\/a>, the HFSC approved the Flood Insurance Market Parity and Modernization Act<\/a>, in a unanimous bipartisan vote.\u00a0 The legislation would offer private flood insurance policies alongside the federally-subsidized policies currently available under the NFIP.\u00a0 Democratic support was withheld from the bill until certain consumer protections, such as disclosures regarding coverage limits and deductibles, were included.\u00a0 Despite bipartisan support, the bill never went further than committee approval.<\/p>\n

In May 2017, Representative Blaine Luetkemeyer (R-Mo) introduced the Taxpayer Exposure Mitigation Act<\/a>, which includes severe modifications to the NFIP. Under the proposed bill, the NFIP must send a portion of the riskiest flood insurance policies to private insurers, commercial loans would be exempt from mandatory coverage, and state and local governments would be allowed to submit their own flood maps, replacing the FEMA-produced FIRMs.\u00a0 The bill passed the HFSC along party lines, but never went further than committee approval.<\/p>\n

In addition to Congress\u2019s proposed reforms<\/a>, the 2018 budget proposed by President Donald Trump eliminates FEMA\u2019s flood mapping program and forecasts a further $8.9 billion in cuts to the NFIP.<\/p>\n

An uncertain future<\/strong><\/p>\n

Until the damage of Hurricanes Harvey and Irma is fully understood, it\u2019s difficult to total the cost.\u00a0 AccuWeather<\/a> estimates $290 billion combined damage for both disasters. The NFIP<\/a> expects $11 billion in insurance payouts in Texas, and it\u2019s uncertain whether the NFIP will provide enough relief.\u00a0 In 2017<\/a>, there were 119,000 flood insurance policies in place for Harris County, home to Houston, Texas.\u00a0 This is an 11% drop from the 133,000 policies in place in 2012.\u00a0 The drop can be partially attributed to the 8% increase in premiums over that time, which currently average $555 a year.\u00a0 For homes inside a SFHA, the premiums can be as high as $2,000 a year.\u00a0 The trend extends beyond Harris County to the greater-Houston area. An estimated 80%<\/a> of properties in the Houston-area lack flood insurance coverage. With premiums too high for many Americans to afford, they are taking the risk to live without flood insurance.<\/p>\n

The combination of the expiring NFIP, uninsured homeowners, and a stalled reform effort creates extreme urgency for Congress to pass a long-term solution.\u00a0 Congress passed<\/a> a short-term NFIP extension tied to a $15.25 billion relief package.\u00a0 It\u2019s uncertain whether the relief package will be enough, or whether Congress can agree on reform legislation.\u00a0 What is certain is that a program which is too expensive for most homeowners to afford, and too costly for the government to operate without significant debt, is in need of reform.<\/p>\n","protected":false},"excerpt":{"rendered":"

In 2016, Congress introduced a bill to reform the National Flood Insurance Program.\u00a0 Proponents of the bill saw it as necessary reform to a debt-ridden and ineffective program, while opponents saw it as an attack against a necessary safeguard for coastal Americans. The National Flood Insurance Program was set to expire at the end of September 2016, until Congress extended the program through December 8, 2017.\u00a0 As Americans rebuild from Hurricanes Harvey and Irma, Congress contemplates reform and seeks to keep the program funded past December.<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26],"tags":[252,468,485,840,851,876,1142,1412,1687],"class_list":["post-1037","post","type-post","status-publish","format-standard","hentry","category-finance-banking","tag-banking","tag-compliance","tag-congress","tag-fema","tag-finance","tag-flood-insurance","tag-insurance","tag-nfip","tag-reform"],"_links":{"self":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/1037","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1037"}],"version-history":[{"count":0,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/1037\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1037"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1037"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1037"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}