Bipartisan flood insurance ‘modernization’ bill boosts borrowing, maximum limits

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U.S. Reps. Judy Biggert, R-Ill., and Barney Frank, D-Mass., introduced bipartisan legislation to revamp the National Flood Insurance Program that boosts the program’s borrowing authority to $21.5 billion, increases the maximum coverage limits and provides for business interruption coverage.

Backers of H.R. 1682, the Flood Insurance Reform and Modernization Act of 2007, say it will increase accountability, eliminate unnecessary federal subsidies, and update the flood insurance program to meet the needs of today.

The bill seeks to address a number of weaknesses in the NFIP that some say were exposed by the unprecedented 2005 hurricane season. In an effort to make the program more actuarially sound, the NFIP phases out subsidized rates on vacation homes and second homes. Under this bill, small business owners will be eligible to purchase business interruption coverage in order to meet payroll and other obligations in the event of flooding.

Also, for the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties. The current NFIP coverage limits are $250,000 for a residential structure, $100,000 for contents, and $500,000 for a commercial structure. The legislation would raise limits for homes from $250,000 to $335,000; for contents from $100,000 to $135,000; and for businesses from $500,000 to $670,000.

The bipartisan bill is also sponsored by Reps. Earl Blumenauer, D-Ore., Gary Miller, R-Calif., Gene Taylor, D-Miss., Richard Baker, R-La., Doris Matsui, D-Calif., JoAnn Davis, R-Va, Maxine Waters, D-Calif. and Ginny Brown-Waite, R-Fla.

“This bill has been very carefully drafted and has passed out of the House before,” said Rep. Frank, chairman of the House Committee on Financial Services. “It gives members an unusual chance to respond to the concerns of those who are pressing to reduce government expenditures and those who want to enhance environmental protection.”

“The 2005 Gulf Coast hurricanes showed the nation how important the National Flood Insurance Program is to the average homeowner,” said Rep. Biggert, ranking member of the House Financial Services Subcommittee on Housing and Community Opportunity. “We must act to strengthen and pull the program into the 21st century and before the next major disaster hits. The program needs to provide a financial safeguard for homeowners while protecting the interests of taxpayers. This bill strikes the right balance.”

Bill provisions

Under the NFIP, which is administered by the Federal Emergency Management Agency (FEMA), flood insurance that could not be purchased in the private marketplace is made available to homeowners, renters and business owners in more than 20,000 communities across the country.

The bill seeks to improve accountability and financial responsibility at the NFIP. FEMA is required to report to Congress on the financial status of the NFIP and conduct a thorough review of the nation’s flood maps. The bill makes the updating and modernization of flood maps an ongoing process, and calls for greater disclosures to consumers about flood insurance.

In addition to boosting NFIP’s borrowing authority to $21.5 billion from $20.775 billion, the bill increases the amount FEMA can raise policy rates in any given year from 10 percent to 15 percent.

In order to help ensure that those homeowners who should have flood insurance do have flood insurance, the bill increases the fines on lenders who do not enforce the mandatory flood insurance policy purchase requirement for those who live in a floodplain and hold a federally-backed mortgage.

In addition to providing for optional business interruption coverage, the bill calls for additional living expenses coverage, optional replacement cost coverage for contents and optional finished basement coverage.

Agents approve; insurers cautious

The legislation met with approval from agents, while insurers reacted more cautiously.

The Independent Insurance Agents and Brokers of America noted the legislation incorporates many of the provisions it has recommended, including the higher maximum limits and business interruption coverage.

“Hurricanes Katrina and Rita clearly showed that homeowners and businesses need higher coverage limits by the NFIP in order to properly insure their properties,” said John Prible, Big “I” assistant vice president for federal government affairs. “An increase in the maximum coverage limits will better allow both individuals and commercial businesses to insure against the damages that massive flooding can cause, and we’re grateful that this increase was included.”

IIABA did not make a specific dollar recommendation for raising coverage limits, but instead recommended that Congress raise them to “correspond with modern-day real estate prices and to consider periodic adjustments to reflect inflation,” Prible noted.

While agents generally applauded the bill, insurers cited some concerns.

“Certainly, it is imperative that we address the solvency of the NFIP, both in the short term and in the long term, because this is a vital, necessary program for consumers,” said Ben McKay, senior vice president, federal government relations for the Property Casualty Insurers Association of America (PCI). “A number of the bill’s provisions work toward those goals, by increasing the borrowing authority in the short term and enhancing mitigation efforts and homeowner outreach for the long term. But we must be careful not to cancel out those positive steps by creating additional costs for a program that is already drowning in debt.”

Of particular concern to insurers is a provision that would triple the time period, from 60 to 180 days, for policyholders to file proof of loss. This provision “could add significant costs both immediately and in the future, with such additional costs ultimately to be borne by taxpayers,” according to PCI.

PCI cited the increase in borrowing authority, increased funding for mitigation programs and mapping updates, and increased outreach to encourage the purchase of flood insurance as positives however.

Topics Agencies Legislation Flood Homeowners