Cassidy, Gillibrand Release National Flood Insurance Extension Draft Legislation for Comment
WASHINGTON—Today, US Senators Bill Cassidy, MD (R-LA) and Kristen Gillibrand (D-NY) released draft legislation to reauthorize the National Flood Insurance Program (NFIP) for 10 years. The NFIP is currently set to expire on September 30, 2017.
“The National Flood Insurance Program gives essential coverage for many,” said Dr. Cassidy. “This legislation extends this critical program, ensuring that Louisiana families have what they need to recover if ever flooded.”
“New Yorkers deserve the peace of mind that if a storm damages their property, they won’t go bankrupt trying to fix it and that the National Flood Insurance Program will be there to help,” said Senator Gillibrand. “I am proud to work on this bipartisan bill to make much-needed reforms to the program, and I will continue to fight in the Senate to make sure that the program is working for New Yorkers and they have the protection then need when the next storm hits.”
This proposed legislation would reauthorize the NFIP over a 10-year term (2017-2027), which is needed to avoid short-term extensions and program lapses that create uncertainty in both the insurance and housing markets.
This legislation also takes to reform the program including by:
Enhancing Flood Insurance Affordability and Accessibility
- Provides Greater Investment in Flood Mitigation & Resiliency. FEMA will be required to reallocate the existing surcharges established under P.L. 113-89 to better finance the Pre-Disaster Mitigation and the Flood Mitigation Assistance Programs. Such an adjustment to existing fees would yield approximately $400 million annually for flood mitigation activities.
- Strengthens the Affordability Standard Disclosure. To ensure continued purchase of flood insurance policies in higher risk areas, federal administrators of the NFIP must identify policyholders with premiums in excess of the one percent of coverage limitation at the county/parish and state levels.
- Modernizes Increased Cost of Compliance (ICC) Coverage. Currently, ICC claims payments must be used to fund up to $30,000 in compliance costs associated with State or local floodplain management laws or ordinances, which typically require structure elevation. The limit of $30,000 is inadequate to elevate most structures. FEMA shall increase ICC coverage to $75,000 with $30,000 of ICC payments allowed to occur outside policy limits.
- Provides Premium Credits to Offset the Cost of Obtaining an Elevation Certificate. Offers policyholders without an elevation certificate, a one-time rate credit of $500 for the cost of obtaining elevation data. Knowledge of flood risk and accuracy of a structure’s base flood elevation information will be enhanced by removing or reducing the financial barrier associated with the acquisition of elevation certificates.
- Facilitates Mitigation Credits that Reduce Premium Rates. FEMA will develop meaningful cost reductions, in excess of 10% of the current risk premium rate for a property, for flood mitigation activities undertaken on properties in all zones, including moderate risk zones. Flood mitigation activities shall be defined by the Administrator and include elevation of mechanical systems and recommendations identified in FEMA Mitigation Assessment Team reports.
- Provides Affordability Vouchers to Offset the Cost of Flood Insurance. For certain policyholders, owner-occupied households for which flood insurance premiums and fees would result in housing costs exceeding 40 percent of household income, affordability vouchers shall be available to offset premium costs exceeding the 40% housing cost threshold.
- Modernizes coverage limits to align with actual replacement costs of residential and non-residential structures. Increases coverage limits from $250,000 to $500,000 for residential structures and $500,000 to $1,000,000 for multifamily and businesses structures to mitigate financial loss and enhance coverage for the replacement value of structures in competitive property markets.
- Creates an Agreed Value Insurance Pilot option for insureds in addition to the traditional stochastic model used to quantify flood loss in monetary terms. Insurance contract prices based on exceedance probabilities of dollar loss levels with a parametric trigger (e.g., indexed to flood/water gauges) used as an alternative to direct loss measurement and site-by-site examination of actual loss could dramatically decrease the cost of flood insurance without jeopardizing the solvency of the National Flood Insurance Program. The Agreed Value Insurance Policy uses FEMA’s existing water depth probability that waters will reach or exceed a given depth of a structure relative to Base Flood Elevation. Savings to the policyholder is achieved by pre-determining the amount paid out in claims (avoiding costly overhead expenditures) according to the depth of water damage to a structure.
Enhancing National Flood Insurance Program Solvency and Sustainability
- Clarifies FEMA’s authority to cede NFIP risk in the capital markets through Insurance-Linked Securities (ILS). Stipulates that the FEMA Administrator shall annually cede a portion of the flood insurance program’s risk to the private reinsurance and/or capital markets at rates and on terms determined by the Administrator to be reasonable and appropriate, in an amount sufficient to maintain the ability of the program to pay claims and limit the program’s exposure to potential catastrophic losses from extreme events.
Providing Private Market Access, Accountability and Competition
- Removes Barriers to Privatization. Additional entrance of private insurers into the flood insurance market can offer homeowners more choices, competitive products and administrative efficiencies yielding lower premiums. Such market entrance by private insurers should be gradual and preserve the availability and affordability of flood insurance coverage for all consumers while continuing the investment in floodplain mapping and management.
- Preserves “Grandfathering” through Continuous Coverage. Allows NFIP policyholders to purchase a private flood insurance policy and switch back to NFIP coverage without losing continuous coverage or grandfathering status.
- Facilitates Gradual Applicability of Extended Private Insurance Coverage. Gradually phases-in private coverage by initially expanding eligibility to certain risk classifications (i.e. business properties, second homes, and severe repetitive loss properties). The Biggert-Waters Act (P.L. 112-141) has set an aggressive rate adjustment trajectory for these risk categories where full actuarial rates will be realized in a compressed timeline. In addition, the Homeowner Flood Insurance Affordability Act (P.L. 113-89) assessed a $250 surcharge on nonresidential and secondary home properties; creating space for a private insurer to offer a competitive flood insurance product. Within two years after Act enactment, FEMA shall measure the level of risk underwritten by private insurers in comparison to the risk underwritten by the NFIP.
- Provides Access to NFIP Claims Data. The NFIP maintains decades of claims data for millions of structures in lower to higher flood risk zones. FEMA shall condition access to anonymized claims data sets on a company’s acceptance of making available its claims data with the intent of expanding consumer access to affordable flood insurance.
- Preserves Funding of NFIP Flood Mapping and Mitigation Activities. In an effort to sustain funding for flood mapping, mitigation and flood management activities; certain NFIP fees and surcharges will carry over to private flood insurance policies where such fees and surcharges fund a public activity that holistically benefits the flood insurance market.
- Creates a Pilot Risk-Sharing Program with Write Your Own Companies. Instructs the FEMA Administrator to engage in NFIP risk-sharing pilot programs where WYO companies or other qualified insurers assume a first-loss position of claims at or below $50,000 and the NFIP operating in a secondary loss position for all structures encompassed in such pilot programs at the determination of the Administrator.
Modernizing Flood Mapping and Flood Risk Accuracy
- Reauthorizes the National Flood Mapping Program. With nearly 3 million miles of unidentified flood hazard areas; along with the need to update and accurately assess risk of existing flood zones; the National Flood Mapping Program shall be reauthorized at a funding level of $500 million annually.
- Provides Mapping Standards and Guidelines for Nongovernmental Entities. Authorize the Technical Mapping Advisory Council (TMAC) to develop map standards for FEMA and non-government entities, thereby giving communities additional avenues to streamline the FEMA mapping process and develop maps that use updated community data & technology.
- Encourages the Use of High-Resolution Mapping Technology. Instructs FEMA to facilitate, partner, and leverage current high resolution topographic data (e.g., Light Detection and Ranging [LiDAR] data, or other new and emerging technologies) in the development of flood insurance rate maps.
- Improves the Flood Mapping of Levee-Protected Areas. FEMA shall replace its “Zone D” designation (defined as an area of undetermined/undefined risk) in levee-protected areas with risk zones that are more appropriate for the level of protection that the flood mitigation features affords. Often, premiums in Zone D are higher than in low/moderate risk zones.
Enhancing National Flood Insurance Program Transparency and Accountability
- Institutes Deadlines for NFIP Claims Determinations. Requires NFIP administrators to make determinations on flood claims within 30 days of the initial filing, followed by any payment owed under the claim.
- Strengthens Consumer Advocacy During a Claims Appeal Process. The duties and responsibilities of the Flood Insurance Advocate, created as part of the Homeowner Flood Insurance Affordability Act, is expanded to provide a direct point of contact for policyholders to discuss the status of their claim appeals and the basis of the decision to initially deny their claims.
- Increases Accountability of NFIP Contractors. Requires FEMA to conduct yearly reviews of all private entities that are participating in the National Flood Insurance Program that provide services related to policies or claims, including adjusting, engineering and legal services. The purpose of the reviews is to ensure that contractors are complying with all policies and procedures to protect policyholders and prevent fraud.
- Simplifies the NFIP Claims Appeals Process: Require the claim appeals process to have clear rules, forms, and deadlines to that are communicated to claimants at the time a claim is initially denied in full or in part.
For a full summary of the bill, click here.
To review of the Draft legislation, click here.
Last week, Dr. Cassidy sent a letter to Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Chuck Schumer (D-NY) advocating for the reauthorization of the NFIP. US Senators Marco Rubio (R-FL), John Kennedy (R-LA), Thad Cochran (R-MS) and Bill Nelson (D-FL) coauthored the letter.
To view the letter, click here or read below: