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1 1 (January 14, 2020)

handle is hein.crs/govbeyw0001 and id is 1 raw text is: FF.ri E~$~ & Updated January 14, 2020 Selected Issues for National Flood Insurance Program (NFIP) Reauthorization and Reform The National Flood Insurance Program (NFIP) is the main source of primary flood insurance coverage in the United States, with more than five million policies in over 22,000 communities. Fifteen short-term NFIP reauthorizations have been enacted since the end of FY2017, and the NFIP is currently authorized until September 30, 2020. Unless reauthorized or amended by Congress, the following will occur on September 30, 2020: (1) The authority to provide new flood insurance contracts will expire; however, insurance contracts entered into before the expiration would continue until the end of their policy term (up to one year); and (2) the authority for the NFIP to borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion. The National Flood Insurance Program Reauthorization Act of 2019 (H.R. 3167), a bill for the long-term reauthorization of the NFIP, has been reported (H.Rept. 116-262) by the House Financial Services Committee. H.R. 3167 would reauthorize the NFIP until September 30, 2024, and allow for a retroactive effective date in the event of a lapse. One bill has been introduced in the Senate, on July 18, 2019, to reauthorize the expiring provisions of the NFIP: the National Flood Insurance Program Reauthorization and Reform Act of 2019 (S. 2187). A companion bill, H.R. 3872, was introduced in the House on July 22, 2019. S. 2187 and H.R. 3872 would also reauthorize the NFIP until September 30, 2024. H.R. 3872 would allow for continuous operation during any lapse in appropriations, by allowing amounts in the Reserve Fund to be used to enter into and renew contracts for flood insurance. Thus, all of these bills make provision to reduce the impact of a government shutdown on the NFIP. The statute directs that NFIP flood insurance rates should reflect the true flood risk to the property. However, Congress has directed FEMA to subsidize flood insurance for certain categories of properties. Currently, properties that pay less than the full risk-based rate are determined by the date when the structure was built relative to the date of adoption of the Flood Insurance Rate Map (FIRM), regardless of other possible reasons, such as the flood risk or the ability of the policyholder to pay. Congress has directed FEMA to subsidize flood insurance for properties built before the community's first FIRM (the pre-FIRM subsidy). FEMA also grandfathers properties at their rate from past FIRMs to updated FIRMs through a cross- subsidy. Under existing law, pre-FIRM subsidies are being phased out, while grandfathering is retained indefinitely. Reforming the premium structure to reflect full risk-based rates could place the NFIP on a more financially sustainable path, risk-based price signals could give policyholders a clearer understanding of their true flood risk, and a reformed rate structure could encourage more private insurers to enter the market. However, charging risk-based premiums may mean that insurance for some properties is considered unaffordable. Under the current statute, rate increases for primary residences are restricted to 5%-18% per year. Other categories of pre-FIRM properties are required to have their premium increased by 25% per year until they reach full risk-based rates. FEMA does not currently have the authority or funding to implement an affordability program. An NFIP-funded affordability program would require either raising flood insurance rates for NFIP policyholders or diverting resources from other existing uses of NFIP funds, such as flood mitigation assistance or floodplain management. H.R. 3167 would repeal a surcharge added by the Homeowner Flood Insurance Affordability Act of 2014 (P.L. 113-89), which is $25 for primary residences and $250 for all other properties. H.R. 3167 would also create a five-year affordability demonstration program to determine the effectiveness of providing means-tested discounted rates for NFIP policies. The discounted premium rates would only be available to owner-occupants of 1-4 unit residences which are the primary residence of a household whose income does not exceed 80% of the area median income (AMI). The discount would cover the chargeable premium rate in excess of 2% of the annual AMI for the area in which the property is located. S. 2187 would prohibit FEMA from increasing the amount which policyholders are required to pay in NFIP premiums, fees, and surcharges by more than 9% per year during the five-year period beginning on the date of enactment. S. 2187 would also require FEMA to establish an Affordability Assistance Fund. This fund would be credited with the amounts saved as a direct result of restricting the reimbursement of Write-Your-Own (WYO) companies (the private insurance companies who are paid to write and service NFIP policies) to no more than 22.46% of the aggregate amount of premiums charged by the company. Financial assistance from the Affordability Assistance Fund would be used for vouchers, grants, or premium credits to a household, if (1) housing costs exceed 30% of the household's adjusted gross income for the year and the total assets owned by the household are not greater than 22% of the median income of the state in which the household is located; or (2) the total household income is less than 120% of the AMI and the amount of the premiums, surcharges, and fees for an annual flood insurance policy exceeds 1% of the coverage limit of that policy. gognpo goo g , q 'S a X 11L1\LXW1k\\\W,

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