By a vote of 406-22, the House passed H.R. 1309, the Flood Insurance Reform Act of 2011, on July 12th. This bill reauthorizes the National Flood Insurance Program (NFIP) through FY 2016 and is intended to ensure its immediate and near-term fiscal and administrative health. The bill also includes reforms to ensure NFIP’s continued viability over the longer term.  It was reported out of the Financial Services Committee by a unanimous vote of 54 to 0. 

The National Flood Insurance Program is the primary source of reliable, affordable flood insurance coverage for millions of American homes and businesses. About 5.6 million homes and businesses currently rely on the NFIP.  In the past, the NFIP primarily covered properties in the special flood hazard areas for which buying flood insurance was mandatory.  Now, however, the NFIP also has a high rate of voluntary participation.

The bill contains numerous key provisions, including the following:

• Delays for three years the mandatory requirement of the purchase of flood insurance for those homeowners in a neighborhood newly classified as a Special Flood Hazard Area.
• Following the three-year delay, allows for a five-year phase-in of full-risk, actuarial rates for these homeowners in newly-classified flood zones.
• Also phases in full-risk, actuarial rates for roughly 350,000 properties currently receiving NFIP subsidies, including commercial properties; second homes and vacation homes; homes sold to new owners; and homes substantially damaged or improved.
• Establishes a new Technical Mapping Advisory Council to develop new mapping standards for 100-year flood insurance maps within 12 months of enactment; and requires FEMA to update all of its flood maps based on the Council’s recommendations over a five-year period.

To encourage greater private sector participation, the bill requires lenders to accept non-NFIP-backed flood insurance coverage provided by a private entity if that coverage meets all the same requirements as NFIP-backed flood insurance. 

The bill is supported by many organizations, including the National Association of Realtors, the National Association of Homebuilders, the American Insurance Association, the Property Casualty Insurers Association, and the Independent Insurance Agents and Brokers of America. 

MAJOR PROVISIONS

• Extends the National Flood Insurance Program (NFIP) for five years, through FY 2016.
• Delays for three years the mandatory requirement of the purchase of flood insurance for those homeowners in a neighborhood newly classified as a Special Flood Hazard Area – so that these homeowners are not suddenly burdened with these insurance costs.
• Following the three-year delay, allows for a five-year phase-in of full-risk, actuarial rates for these homeowners in newly-classified flood zones.  Specifically, in the first year of an area being designated as having special flood hazards, the premium rate for insurance would be 50 percent of the full-risk, actuarial rate.  The rate would then increase by 12.5 percent of the full-risk, actuarial rate each year for the next four years until it is equivalent to 100 percent of the rate.
• Also phases in full-risk, actuarial rates for roughly 350,000 properties currently receiving NFIP subsidies, including:

• Commercial properties;
  
• Second homes and vacation homes;
• Homes sold to new owners;
• Homes substantially damaged or improved;
• Severe Repetitive Loss Properties with multiple flood claims; and
• Property owners who allowed their policies to lapse by choice.

• Sets the minimum deductible at $1,000 for properties with full-risk, actuarial rates and at $2,000 for properties with subsidized rates, for flood insurance policies.
• Indexes the maximum coverage limits for flood insurance policies to inflation, beginning in 2012.
• Raises the annual cap on premium increases from 10 percent to 20 percent.
• Allows families to pay flood insurance premiums in installments.
• Establishes a new Technical Mapping Advisory Council made up of federal, state, and local experts to develop new mapping standards for 100-year flood insurance maps.  The Council must submit the new standards to FEMA and the Congress within 12 months of enactment and then continue to review these standards for four additional years, at which time the Council would be terminated.
• Beginning six months after the Technical Advisory Council issues its initial set of recommendations, FEMA would have five years to update all of its flood maps to incorporate these new mapping standards.
• To encourage greater private sector participation, requires lenders to accept non-NFIP-backed flood insurance coverage provided by a private entity if that coverage meets all of the requirements as NFIP-backed flood insurance.

OTHER PROVISIONS

• Requires annual notifications of homeowners living in flood zones about the flood risk in their community, the geographic boundaries of the flood zone, the requirement to purchase flood insurance, and a general estimate of what similar homeowners in similar communities typically pay for flood insurance.
• Provides optional coverage for additional living expenses incurred by homeowners when losses from a flood make their home unfit to live in.
• Requires that each good faith estimate provided to homebuyers at closing include a notification about the availability of flood insurance regardless of whether or not the home being purchased is located in a flood zone, the ability to escrow flood insurance payments, and contact information for the National Flood Insurance Program.
• Requires FEMA to develop a notice to landlords to inform tenants if they live in an area having special flood hazards and details about NFIP insurance for the contents of their apartment.
• Allows for mitigation grants for repetitive flood loss properties to be provided directly to homeowners.  (Under the NFIP mitigation program, the Federal Government purchases properties subject to repeated flood losses and relocates property owners to lower risk areas.)
• Requires a variety of reports by FEMA and the Government Accountability Office (GAO) regarding various privatization initiatives, including:

• Investigating possible options regarding beginning to privatize the NFIP over time;
• Determining the capacity of private insurers, reinsurers, and financial markets to underwrite NFIP flood risk; and
• Assessing new ways to strengthen the NFIP’s ability to pay claims without having to borrow from the Treasury.

• Requires FEMA to annually notify all holders of policies transferred to the NFIP Direct program of their options to purchase flood insurance directly from another Write-You-Own insurance company.  (Under the NFIP program, property owners purchase coverage either directly from NFIP or from private insurers that voluntarily participate in the Write Your Own (WYO) program.  WYO insurers take responsibility for policy administration and claims processing but assume no financial risk in settling claims.)
• To address the rapid increase in the number of policies administered under the FEMA’s NFIP Direct policy servicing program, requires FEMA to report to Congress on the policies and procedures that it can implement to limit the size of the NFIP Direct program to less than 10 percent of all flood insurance policies.
• Requires FEMA and GAO to each conduct a study to assess options, methods, and strategies for offering voluntary community-based flood insurance policy options, and report their findings to Congress within 18 months.
• Requires FEMA to report annually to Congress on the status of the NFIP with detailed information about the financial status of the program.