Policy Issues

NATIONAL FLOOD INSURANCE PROGRAM (NFIP)

ISSUE

 

The National Flood Insurance Program (NFIP) is currently operating under a continuing resolution. Since the end of FY 2017, over a dozen short-term NFIP reauthorizations have been enacted. As policymakers continue to debate potential changes and improvements to the program, their challenge is to find a balance between improving the financial solvency of the program, reducing taxpayer exposure, and addressing affordability concerns.

NFIP logo

Position

The Roundtable and its partner associations support a long-term reauthorization and improvements of the NFIP that help property owners and renters prepare for and recover from future flood losses. Given the low coverage amounts provided to commercial properties, it is important to permit larger commercial loans to be exempted from the mandatory NFIP purchase requirements.

Background

  • Floods are the most common, costliest natural peril in the U.S. The NFIP was enacted in 1968 due to a lack of private insurance and increases in federal disaster aid. The Program is administered by the Federal Emergency Management Agency (FEMA) and is essential for homeowners, renters and small businesses in affected areas.
  • The level of flood damage from recent storms makes it clear that FEMA needs a holistic plan to prepare the nation for managing the cost of catastrophic flooding under the NFIP.
  • Reauthorization of the NFIP is important for residential markets, overall natural catastrophe insurance market capacity, and the broader economy. However, under the NFIP, commercial property flood insurance limits are low – $500,000 per building and $500,000 for its contents. NFIP has approximately 5 million total properties, instead, only 6.7% are commercial. Nearly 70% of NFIP is devoted to singlefamily homes and 20% for condominiums. In the total program, 80% pay actuarial sound rates, instead, in the commercial space, only 60% pay actuarial sound rates.
  • Congressional hearings have illuminated numerous acute problems surrounding the NFIP, such as insolvency, increased risk of flooding across the country, and insufficient and inaccurate flood mapping, to mention just a few. During these hearings, witnesses and members of Congress identified a correlation between the NFIP’s problems and the artificially low rates they charge – a reality that would likely not be the case if the NFIP followed congressional directives to meaningfully raise rates at a reasonable pace annually.
  • The unintended negative outcomes generated by the NFIP continue to grow – now spreading to GSEs (government-sponsored enterprises) Fannie Mae and Freddie Mac.
  • Lenders typically require this base NFIP coverage, and commercial owners must purchase Supplemental Excess Flood Insurance for coverage above the NFIP limits. The NFIP’s low commercial limits make it problematic for most commercial owners. As a result, The Roundtable has been seeking a voluntary exemption for mandatory NFIP coverage if property owners have flood coverage from commercial insurers.
  • By permitting certain private issue insurance policies to satisfy the NFIP’s “mandatory purchase requirement” for properties in flood plains financed by loans from federally guaranteed institutions, commercial property owners would have the ability to “opt-out” of mandatory NFIP commercial coverage if they have adequate private coverage outside the NFIP program to cover financed assets.

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