United States: Flood Insurance Update - February 3, 2014

On January 30, 2014, the US Senate passed S.1926, the Homeowner Flood Insurance Affordability Act, on a vote of 67-32. Support for this bill included several Republican Senators from the coastal states of Louisiana, Mississippi, Georgia and Florida, suggesting that Congress may yet enact additional modifications to the flood insurance program this year. Action in the House is not yet assured, but there are indications that the House will consider a modified version of the Senate proposal.

The Landscape for the Flood Insurance Program: Omnibus Provisions

In 2012, Congress enacted the Biggert-Waters Flood Insurance Reform Act, (Biggert-Waters Act) which would impose dramatic premium increases on grandfathered policies in October of this year. The rate increases were intended to improve the financial stability of the National Flood Insurance Program (NFIP) — at present, the program is $24 billion in debt with further deficits projected over time. Rep. Bill Cassidy (R-LA) and Senator Mary Landrieu (D-LA) have been the most vocal members of Congress in seeking an implementation delay of these premium increases, and have both added language to other legislative vehicles, including a successful addition to the Senate Homeland Security appropriations bill.

The $1.1 trillion omnibus spending package, passed by Congress and signed by the President on January 17 of this year, included a one-year delay in rate increases for some newer homes. The omnibus action blocks the Federal Emergency Management Agency's (FEMA) ability to implement the scheduled premium increases, but did not address additional concerns regarding subsidies and subsidy transfers for new homes.

Senate Action & Amendments

Following the passage of the omnibus bill, the Senate moved ahead with consideration of S. 1926, which focused directly on the issues of subsidies and other contested components of the Biggert-Waters Act not addressed in the omnibus provisions.

S. 1926 was introduced by Senator Bob Menendez (D-NJ) and Senator Johnny Isakson (R-GA), both from states that were severely impacted by flooding due to Hurricane Sandy and other natural disasters in recent years. The legislation would delay the provisions of the Biggert-Waters Act for four years. Because Biggert-Waters expires in 2017, if enacted into law, S. 1926 would essentially nullify the reforms made to the NFIP by the Biggert-Waters Act..

Driven by concerns regarding the financial stability of the NFIP, Senator Patrick Toomey (R-PA) proposed an amendment to S. 1926 that would have adjusted the phase-in of higher insurance rates, rather than delay them; the Senate rejected the proposal and the amendment failed on a 34-65 vote. Critics of Senator Toomey's amendment said it would allow rates to increase before FEMA could complete an affordability study and finalize new flood maps.

House Reaction

Despite swift Senate action, S. 1926 still faces strong opposition and criticism in the House, primarily from fiscal conservatives who assert that any delay of premium rate increases will bankrupt the already under-water flood insurance program. If the NFIP were unable to sustain the weight of its debt, it could leave property owners more vulnerable to loss of coverage and force a taxpayer-funded bailout of the program.

Speaker of the House John Boehner (R-OH) has indicated that the House will not consider a four year delay of flood insurance premium increases, but may consider some flood insurance changes to assist homeowners and protect taxpayers. Additionally, Chairman of the House Financial Services Committee Rep. Jeb Hensarling (R-TX) has expressed opposition to the premium increase delay making it unlikely that a flood insurance bill with a long term delay of such premium increases would move out of his committee.

The White House Reaction and the Prospect for Final Passage

In a rare instance where their positions are aligned, both House Republican Leadership and the Obama Administration oppose a four year delay of Biggert-Waters implementation. On Monday, the White House acknowledged that many policyholders are struggling financially with the new rates and underscored the President's commitment to work with Congress to find fiscally responsible ways to address these challenges. Despite opposition to the four year delay, the White House said it supports the policy goals unrelated to flood insurance issues in Title II of S.1926, , which would establish the National Association of Registered Agents and Brokers (NARAB) to license agents and brokers to sell insurance in states outside their home state, rather than separate licenses for each state.

GAO Flood Insurance Study

An analysis by the Government Accountability Office (GAO) was released days before the Senate took action on S. 1926. In the report, GAO highlighted the structural weaknesses of the NFIP and the risk of its potential burden to taxpayers. The GAO recommended that Congress consider eliminating subsidized rates, charge full-risk rates to all policyholders, and appropriate funds for premium assistance to eligible policyholders to address affordability issues. The report also found that private insurers would be more willing to write flood coverage if the federal government insured only the riskiest properties. Alternatively, the GAO said the government could become the reinsurer for the industry.

As legislative action moves to the US House, we will continue to provide updates on the progress of these NFIP proposals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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