Week ending November 17, 2017
H.R.2874 – 21st Century Flood Reform Act
H.R. 2874 would authorize the National Flood Insurance Program to enter into and renew flood insurance policies through fiscal year 2022.
HR 2874 aims to achieve reforms to improve the financial stability of the National Flood Insurance Program, to enhance the development of more accurate estimates of flood risk through new technology and better maps, to increase the role of private markets in the management of flood insurance risks, and to provide for alternative methods to insure against flood peril.
“Specifically, H.R. 2874 would require the Federal Emergency Management Agency (FEMA) to raise premiums for pre-FIRM policyholders by a minimum of 8 percent a year. The bill would require FEMA to increase annual surcharges on all primary residences by 60 percent and increase annual surcharges for second homes that are not in preferred risk areas by 10 percent. The bill would also require FEMA to increase the Reserve Fund fee, which is already 15% of premiums, by one percent each year until the NFIP achieves a reserve ratio of 7.5 percent, which may take several years to reach.” – Minority view.
(From crs) TITLE I–POLICYHOLDER PROTECTIONS AND INFORMATION
(Sec. 101) This bill amends the National Flood Insurance Act of 1968 to change annual limits on premium increases for insurance obtained through the National Flood Insurance Program (NFIP).
(Sec. 102) The Federal Emergency Management Agency (FEMA) must provide financial assistance through state programs for low income families to purchase NFIP insurance.
(Sec. 103) FEMA must publish an annual explanation of flood insurance premiums and hold public meetings.
(Sec. 104) FEMA must incorporate in premium rates the differences in coastal and riverine (inland) flood risk.
(Sec. 105) FEMA’s implementation of monthly premium payment schedules is exempted from rulemaking. FEMA may implement this schedule as a pilot program.
(Sec. 106) FEMA must clearly communicate to policyholders their property’s full flood risk, the history of flood claims on their property, and the effect of filing further claims.
(Sec. 107) FEMA must make data on historical claims, required coverage, and previous damage available to the current owner of the property within 30 days of a request.
(Sec. 108) State or local governments must require a seller or lessor to disclose to a purchaser or lessee any previous flood damage or flood insurance claims, and any obligation to purchase flood insurance. This requirement, whether by statute or regulation, must be adopted for the area to qualify for participation in NFIP.
(Sec. 109) FEMA may create a community-wide flood insurance pilot program that covers all residential and non-residential properties and satisfies the mandatory purchase requirement. (Federal agencies that oversee mortgage lending must mandate the purchase of flood insurance for properties located in special flood hazard areas.)
(Sec. 110) NFIP is extended through FY2022.
TITLE II–INCREASING CONSUMER CHOICE THROUGH PRIVATE MARKET DEVELOPMENT
(Sec. 201) FEMA must allow a Write Your Own company to sell private flood insurance. (A Write Your Own company writes and services federal standard flood insurance policies in its own name.)
(Sec. 202) FEMA must provide data related to NFIP risks and premiums, including community-level data, through a publicly available data system.
(Sec. 203) If an NFIP policyholder switches to private flood insurance during the NFIP coverage period, FEMA must refund any unused NFIP premium. Properties that have received a claim payment for that period or Increased Cost of Compliance mitigation assistance are not eligible for a refund.
(Sec. 204) Mutual aid societies may sell private flood insurance, subject to state law. (A mutual aid society is an organization of members who share a common set of ethical or religious beliefs.) This coverage satisfies the mandatory purchase requirement.
(Sec. 205) The Government Accountability Office (GAO) must report on the feasibility of reducing flood insurance premiums and eliminating the need for flood insurance coverage by authorizing flood damage savings accounts.
(Sec. 206) If determined feasible by the GAO, FEMA must establish a demonstration program for flood damage savings accounts.
TITLE III–MAPPING FAIRNESS
(Sec. 301) In establishing premium rates, FEMA must use, in part, applicable flood insurance rate maps and other appropriate risk assessment models, data, and tools.
(Sec. 302) FEMA denials of requests for updates to flood maps may be appealed. If an appeal is successful, FEMA must refund premiums and the policyholder may be permitted to cancel the policy.
(Sec. 303) The bill revises the appeal period for FEMA flood elevation determinations and, if no appeals are filed, makes a determination final.
(Sec. 304) This bill amends the Biggert-Waters Flood Insurance Reform Act of 2012 to revise the time period FEMA provides to communities for consultation regarding mapping changes.
(Sec. 305) FEMA must consult with the Department of Defense, the U.S. Geological Survey, and the National Oceanic and Atmospheric Administration to obtain information relevant to flood insurance mapping.
TITLE IV–PROTECTING CONSUMERS AND INDIVIDUALS THROUGH IMPROVED MITIGATION
(Sec. 401) The bill revises the NFIP community rating program to require (currently, allows) FEMA to provide premium credits in communities that protect natural and beneficial floodplain functions.
TITLE V–PROGRAM INTEGRITY
(Sec. 501) The bill makes FEMA responsible for ensuring NFIP is financially sound. FEMA must commission an annual independent actuarial review of the financial status of NFIP.
(Sec. 502) The premium surcharge amount on flood insurance is changed to: (1) increase annual surcharges for all primary residences, (2) reduce annual surcharges for certain non-owner occupied residential properties, and (3) increase annual surcharges for all other non-primary residences.
(Sec. 503) FEMA must institute a uniform rate of assessment for all policyholders when increasing premiums.
During the phase-in period of the required reserve ratio for the NFIP reserve fund, FEMA must increase the annual assessment by at least one percentage point if the required amount was not collected the previous year.
(Sec. 504) This bill revises NFIP classifications of properties incurring multiple flood losses and coverage for properties that have incurred multiple flood losses.
For multiple loss properties, FEMA must raise premiums by at least 15% annually if the premiums do not reflect full risk.
Certain multiple loss properties are subject to minimum deductibles.
FEMA must undertake efforts to validate the accuracy of claim history data.
FEMA must deny coverage to a property owner that does not implement flood mitigation measures if the property is an extreme repetitive loss property (a property with cumulative claims that exceed 150% of the maximum coverage amount).
Multiple loss properties are not eligible for subsidized premium rates that apply to properties newly mapped into areas with special flood hazards.
FEMA must communicate to policyholders the effect on premiums of filing further claims for multiple-loss properties.
The bill revises the Flood Mitigation Assistance program, including to make assistance available to additional multiple loss properties.
(Sec. 505) This bill eliminates NFIP coverage for properties that prospectively exceed specified lifetime levels of claim payments.
(Sec. 506) This bill limits the availability of NFIP coverage for high-risk properties, including new structures built in a special flood hazard zone and structures with high replacement costs.
FEMA must establish a Flood Insurance Clearinghouse to provide offers of NFIP and private flood insurance coverage for high-risk properties.
(Sec. 507) The allowance paid to Write Your Own companies is limited to 27.9% of the premium rate. FEMA must reduce the costs to companies participating in the Write Your Own program.
(Sec. 508) This bill amends the Flood Disaster Protection Act of 1973 to increase penalties for violations of the mandatory purchase requirement.
The GAO must report on the mandatory purchase requirement.
(Sec. 509) If a state allows all-perils policies to cover flood damage, property in that state is not subject to NFIP’s mandatory purchase requirement.
(Sec. 510) The bill raises the maximum loan amount for the small loan exception to NFIP’s mandatory purchase requirement from $5,000 to $25,000, adjusted for inflation.
A state or local government, or a private lender, may require flood insurance coverage for structures outside a special flood hazard area.
(Sec. 511) FEMA must approve claims under NFIP not later than 120 days after a policyholder submits proof of loss.
(Sec. 511) [sic] The GAO must report on options for simplifying NFIP.
(Full text of H.R. 2874 congress.gov)
Sponsor: Rep. Duffy, Sean P. [R-WI-7] (Introduced 06/12/2017)
Status: Passed House /
VOTES and FLOOR ACTION
On Passage: On passage Passed by the Yeas and Nays: 237 – 189 (Roll no. 630)
Motion to recommit: On motion to recommit with instructions Failed by the Yeas and Nays: 190 – 236 (Roll no. 629)
Text of the motion:
The House proceeded with 10 minutes of debate on the motion to recommit with instructions. The instructions contained in the motion seek to require the bill to be reported back to the House with an amendment to establish the effective date to take place after the first day that the Administrator of the Federal Emergency Management Agency and the Inspector General of the Federal Emergency Management Agency have certified that final resolution has been reached on all claims for losses resulting from Hurricane Sandy in 2012 that were covered by flood insurance made available under the National Flood Insurance Program.
COST AND IMPACT
Cost to the taxpayers: . CBO estimates that the changes made by this legislation would increase collections from NFIP policyholders but would reduce the number of property owners who purchase insurance through the NFIP. On net, CBO estimates that the changes made by H.R. 2874 would reduce direct spending by $187 million over the 2018-2027 period. CBO also estimates that enacting H.R. 2874 would increase revenues by about $4 million over the 2018-2027 period.
CBO estimates that implementing other provisions would cost $75 million over the 2018-2022 period, subject to the appropriation of the authorized and necessary amounts.
Pay-as-you-go requirements: Data not available
Regulatory and Other Impact: H.R. 2874 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act.
Dynamic Scoring: CBO estimates that enacting H.R. 2874 would not increase net direct spending or on-budget deficits by more than $5 billion in any of the four consecutive 10-year periods beginning in 2028.
Tax Complexity: Not applicable to this bill.
Earmark Certification: Data not available
Duplication of programs: Data not available
Direct Rule-Making: Data not available
Advisory Committee Statement: Data not available
Budget Authority: Data not available
Constitutional Authority: Assumed.
H.R. 2874 makes a number of changes to the National Flood
Insurance Program (NFIP) that make flood insurance less
affordable, less available, and less fair for consumers.
H.R. 2874 would make flood insurance less affordable by
raising premiums, fees, and surcharges on policyholders, while
doing nothing to address the NFIP’s debt or the billions of
dollars being spent on interest to service that debt.
Specifically, H.R. 2874 would require the Federal Emergency
Management Agency (FEMA) to raise premiums for pre-FIRM
policyholders by a minimum of 8 percent a year. The bill would
require FEMA to increase annual surcharges on all primary
residences by 60 percent and increase annual surcharges for
second homes that are not in preferred risk areas by 10
percent. The bill would also require FEMA to increase the
Reserve Fund fee, which is already 15% of premiums, by one
percent each year until the NFIP achieves a reserve ratio of
7.5 percent, which may take several years to reach. That is yet
another cost added on to policyholders’ already expensive
premiums. Additionally, the bill would make flood insurance
less affordable by eliminating grandfathering. This would cause
homeowners who built to code and did everything right, to pay
higher premiums associated with new flood maps that did not
exist at the time the property was built. Further, the bill’s
attempt to address longterm affordability challenges makes
matters worse. Although H.R. 2874 allows states to voluntarily
set up an affordability program, the bill does not provide any
funding for them to do so. States would bear the administrative
costs of setting up the programs, while the costs of any
discounts to eligible policyholders would be paid for by
premium and fee increases on other policyholders within the
state, increasing the affordability challenges for middle
H.R. 2874 would make flood insurance less available by
prohibiting NFIP coverage for several classes of properties,
subject to certain market conditions. Specifically, all newly
constructed properties in a special flood hazard area (SFHA),
any residential property with a replacement value higher than
$1 million, and multiple loss properties for which the
aggregate amount in claims payments exceed twice the amount of
the replacement value of the structure, would be barred from
accessing federal flood insurance. Instead, these policyholders
would be forced to purchase flood insurance in the private
market, which remains undeveloped. Due to the market’s current
limitations, the bill attempts to provide a safety valve to
allow consumers who cannot find or afford insurance in the
private market the opportunity to return to the NFIP. However,
policyholders would be charged an additional ten percent
surcharge for failing to find coverage in the private market
through no fault of their own. Further, this ill-conceived
safety valve is not available to properties with lifetime
claims exceeding twice the amount of the structure’s
replacement value. Because the metric for excessive claims is
based on the replacement value of the home, lower value homes
will be disproportionately impacted, leaving these households
at risk of displacement or overwhelming cost burdens. As
borrowers lose NFIP coverage, and especially if alternative
private coverage is not available or affordable, these
properties will lose value and the risk of abandonment and/or
foreclosure increases dramatically. The American Bankers
Association (ABA) has warned that this provision could cause a
decrease in property values because of the lack of available
coverage and “DI some flood prone communities, this could lead
to a local or regional foreclosure crisis.”
H.R. 2874 would make flood insurance less fair for
consumers by opening the door to the potential for cherry-
picking of the lowest-risk properties by the private sector.
Democrats support the responsible development of the private
flood insurance market. However, H.R. 2874 would call for
wholesale changes that undermine the NFIP and leave
policyholders vulnerable in an untested private market.
Specifically, H.R 2874 would eliminate the non-compete clause
that prevents Write-Your-Own (WYO) companies from offering
their own competing private flood insurance policies. The non-
compete clause is a long-standing condition of participation in
the WYO Program and, according to FEMA, ensures that WYOs–who
administer the NFIP while taking on none of the risk–do not
inappropriately take advantage of their access to FEMA’s data
on policyholders to cherry pick or steer consumers towards a
competing product. Eliminating the non-compete clause would
also give WYOs an unfair competitive advantage compared to
other private insurance companies, many of which have been able
to successfully build a flood insurance portfolio without
access to this data. Additionally, this bill would require FEMA
to publicly disclose virtually all of its proprietary
information related to claims, underwriting, and risks. While
the bill stipulates that personally identifiable information is
to be excluded, it is unclear how FEMA can comply with this
requirement without violating the Privacy Act of 1974.
Moreover, the sharing of proprietary information such as claims
data is uncommon in the insurance industry. In fact, claims
data and modeling information are the keys to competition
amongst insurance companies and raises serious concerns about
the potential for cherry-picking.
While an amendment to this bill added language to
reauthorize the NFIP for five years, the refocus outlined above
are too harmful to enact for five years. For these reasons, we
oppose H.R. 2874.
Michael E. Capuano.
Stephen F. Lynch.
Carolyn B. Maloney.
Daniel T. Kildee.
Nydia M. Velaquez.
Gregory W. Meeks.
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