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Cogesoa Resarc Serv
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Updated January 2, 2019
Selected Issues for National Flood Insurance Program (NFIP)
Reauthorization and Reform
NFIP Reauthorization
The National Flood Insurance Program (NFIP) is the main
source of primary flood insurance coverage in the United
States, with more than 5.1 million policies in over 22,000
communities. Ten short-term NFIP reauthorizations have
been enacted since the end of FY2017, and the NFIP is
currently authorized until May 31, 2019. Unless
reauthorized or amended by Congress, the following will
occur on May 31, 2019: (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 of 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.
A number of bills were introduced in the 115th Congress to
provide longer-term reauthorization of the NFIP, as well as
numerous other changes to the program. The House passed
H.R. 2874 (21st Century Flood Reform Act) on November
14, 2017. Three bills were introduced in the Senate. 1: S.
1313 (Flood Insurance Affordability and Sustainability Act
of 2017), S. 1368 (Sustainable, Affordable, Fair, and
Efficient [SAFE] National Flood Insurance Program
Reauthorization Act of 2017), and S. 1571 (National Flood
Insurance Program Reauthorization Act of 2017). However,
neither H.R. 2874 nor the three Senate bills were
considered by the Senate in the 115th Congress.
Premiums and Affordability
Throughout its history, Congress has asked FEMA to set
NFIP premiums that are simultaneously risk-based and
reasonable. Except for certain subsidies, statute directs
that NFIP flood insurance rates should reflect the true flood
risk to the property. 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), rather than 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.
H.R. 2874 would have phased out the pre-FIRM subsidy for
primary residences at a rate of 6.5%-15% (compared to the
current rate of 5%-18%) and would increase surcharges for
most policyholders. It would also have capped premiums
for single-family properties at $10,000 per year. S. 1368
would have prohibited FEMA from increasing the amount
of covered costs above 10% per year on any policyholder.
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 another existing use. H.R. 2874 would have
authorized states to create a voluntary flood insurance
affordability program to reduce premiums for owner-
occupiers of single-family residences. A state affordability
program would have been funded through a surcharge on
each policy within that state that is not eligible to
participate in the affordability program. This would have
created a new cross-subsidy within the NFIP for any states
that develop an affordability program. S. 1313 would have
provided vouchers to reduce premiums for owner-occupied
households in mapped high-risk flood zones; it is unclear
how these vouchers would be funded. S. 1368 would have
required FEMA to establish an Affordability Assistance
Fund. This fund would have been credited with the income
from an existing surcharge paid by all policyholders, and
could be used for vouchers, grants, or premium credits to
eligible households.
Properties with Multiple Losses
An area of controversy involves NFIP coverage of
properties that have suffered multiple flood losses. One
concern is the cost to the program; another is whether the
NFIP should continue to insure properties that are likely to
have further losses. According to FEMA, all repetitive loss
(RL) and severe repetitive loss (SRL) properties over the
history of the program amount to approximately $17 billion
in claims, or approximately 30% of total claims paid. Some
RL and SRL properties have been mitigated, and some are
no longer insured by the NFIP. Currently, insured RL and
SRL properties (which represent about 2% of the overall
policies in the NFIP) account for approximately $9 billion
in claims, or approximately 16% of total claims paid over
the history of the program. Reducing the number of RL and
SRL properties, through mitigation or relocation, could
reduce claims and improve the NFIP's financial position.
H.R. 2874 and S. 1571 would have required certain NFIP
communities with a history of flood loss to identify
repetitive loss property locations, assess the continuing
risks to such areas, and develop community-specific flood
mitigation plans for risks in these areas. Failure to meet
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