Flood Insurance Reform and Modernization
On September 27, 2007, the House passed the Flood Insurance Reform and Modernization Act of 2007, H.R. 3121. President Bush threatened to veto this bill. The bill reauthorizes the National Flood Insurance Program (NFIP) for five years, through FY 2013 (the current authorization for NFIP expires on September 30, 2008). It also provides for reforms to the NFIP, improves flood mapping, and expands the NFIP to provide for multiple peril coverage. Following are highlights of some of the bill’s provisions.
Ensures the National Flood Insurance Program’s continued viability by phasing out unnecessary subsidies. To make the Flood Insurance Program more actuarially sound, the bill phases out subsidized rates on commercial properties, vacation homes, and second homes built before 1974. Multifamily rental properties are excluded from the phase-out of the subsidy.
Ensures the program’s continued viability by encouraging broader participation. To encourage participation in the Flood Insurance Program, the bill provides for a new community outreach program, and provides for a study of how to increase participation by low-income families. In order to help ensure that those homeowners who should have flood insurance do have flood insurance, the bill increases the fines on lenders who do not enforce the mandatory flood insurance policy purchase requirement for those who live in a floodplain and hold a federally-backed mortgage.
Ensures the program’s continued viability by requiring greater fiscal accountability and authorizing higher rates. The bill requires FEMA to report to Congress annually on the financial status of the Flood Insurance Program. It also increases the amount FEMA can raise policy rates in any given year from 10 percent to 15 percent.
Requires the updating and modernizing of flood maps. The bill requires FEMA to conduct a thorough review of the nation’s flood maps. It also makes the updating and modernization of flood maps an ongoing process, and increases funding for mapping. In addition, it authorizes the Technical Mapping Advisory Council, made up of industry professionals, to advise FEMA on flood mapping.
Addresses some of the program’s weaknesses exposed by the 2005 hurricane season. Under the bill, small business owners will be eligible to purchase business interruption coverage at actuarial rates to better prepare them to meet payroll and other obligations during the next big storm. And, for the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties.
Improves consumer protections. The bill clarifies the disclosures that must be made to consumers about flood insurance. It also requires “plain language” information on flood insurance policies. Landlords must notify tenants of contents’ coverage availability. Further, the bill makes flood insurance effective immediately upon purchase of a home.
Provides for an optional multiple peril policy. Finally, the bill includes provisions to responsibly expand the Flood Insurance Program to provide for an optional multiple peril policy – to allow property owners to purchase wind and flood coverage in a single policy. A homeowner or business in a flood plain would have to sign up for flood coverage to obtain the wind coverage. Wind coverage would not be available separately. The bill requires premiums for the new optional coverage to be risk-based and actuarially sound, so that the program would be required to collect enough premiums to pay claims. Under the bill, multiple peril policies would be available where local governments agree to adopt and enforce building codes and standards designed to minimize wind damage, in addition to the existing flood program requirements for flood plain management.
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