Policy Issues

NATIONAL FLOOD INSURANCE PROGRAM (NFIP)

ISSUE

Floods are the most common and most destructive natural disaster in the U.S., and there is limited private market capacity.  The National Flood Insurance Program (NFIP) aims to reduce the impact of disasters by promoting the purchase and retention of general risk insurance, but also of flood insurance, specifically.

 

The NFIP was scheduled to sunset in 2018, but the program was temporarily extended until Sept. 30, 2019 under one of the 11 short -term extensions Congress has approved since 2017.  On June 12, 2019, the House Financial Services Committee unanimously passed The National Flood Insurance Program Administration Reform Act of 2019 (H.R. 3111) that makes much-needed improvements to the NFIP’s appeals and litigation process following the numerous flaws identified in the oversight, accountability, and transparency of the claims process in the aftermath of Superstorm Sandy.


As policymakers continue to debate potential changes and improvements to the program, their challenge is to find a balance between improving the financial solvency and structural components of the program, while reducing taxpayer exposure and addressing affordability concerns.

NFIP logo

Position

The Roundtable and its partner associations support a long-term reauthorization and reform of the NFIP that help property owners and renters prepare for and recover from future flood losses. 

Background

The level of damage from recent catastrophic storms  makes it clear that the Federal Emergency Management Agency (FEMA) needs a comprehensive plan to prepare the nation for managing the cost of catastrophic flooding under the NFIP. NFIP coverage is available for homeowners, renters and small businesses.

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 insures approximately 5 million total properties, but only 6.7 percent are commercial.  Nearly 70% of NFIP is devoted to single-family homes; 20% for condominiums.  In the total program, 80% pay actuarially sound rates; in the commercial space, only 60% pay actuarially sound rates.

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, we have 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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