The House of Representatives on Tuesday voted 237-189 to pass the 21st Century Flood Reform Act (H.R. 2874), a package of seven bills that reauthorizes the National Flood Insurance Program (NFIP) until 2022 and introduces various reforms.

The fate of the NFIP now rests with the Senate, which may adopt the House bill or a version of it, advance its own bill, or do nothing.

Currently the NFIP is set to expire on Dec. 8, 2017.

“There are a lot of good reforms in this bill for both taxpayers and ratepayers,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas). “It is an absolutely revolutionary reform that we can break open the government monopoly and bring in market competition, innovation, more affordable rates for so many.”

Some of the reforms in the House bill seek to encourage more private flood insurers to enter the market.

The House measure, which was sponsored by Rep. Sean Duffy (R-Wis.), received praise from business, taxpayer and insurance groups for the most part; however, some insurance interests took issue with its cut in the NFIP’s Write Your Own (WYO) reimbursement to private insurers.

Other groups including environmental groups and actuaries said they support the measure as far as it goes but have hopes the Senate will introduce even more reforms.

Democrats said the measure would raise costs on low and middle income homeowners through higher premiums and surcharges and mean fewer people would buy flood insurance. They also warned it could trigger foreclosures in some high-risk, low-income areas.

Flood Reforms

Some of the reforms in the House bill seek to encourage more private flood insurers to enter the market; reduce costs from repetitive loss properties, improve flood mapping; cap annual premium increases and surcharges; continue the current practice of grandfathering certain properties from risk-based rates; and require the Federal Emergency Management Agency (FEMA), which administers the flood program, to share historic flood loss data with private insurers. Another provision would permit WYO insurance companies to also sell their own private policies, a practice now prohibited.

Other provisions would reduce the reimbursements to the private insurers involved in the WYO program; limit the premium on any residential property to $10,000 a year regardless of the property value; allow businesses to opt out of the flood insurance requirement after one year; and permit localities to create their own flood maps,

Hensarling stressed the need to mitigate the costs of repetitive loss properties. “We have to realize if we’re going to make this program sustainable we cannot have 1 percent of the properties causing 25 percent of the losses. Ultimately, if all we do is rebuild the same properties in the same fashion in the same location, that is neither wise nor compassionate,” said the congressman, who has announced he will not run for re-election.

The final House measure does not go quite as far in some ways as the original seven measures passed by Hensarling’s committee. To assure passage, Hensarling withdrew or amended several provisions, including one that would have blocked NFIP from selling policies to homes valued at $1 million or more.

The bill does not ban new construction from the federal insurance program as President Donald Trump has urged.

NFIP Finances

The final bill also does not directly address the NFIP’s debt that reached its borrowing limit of $30 billion this hurricane season. But the House measure does call for some financial reforms including requiring FEMA to undertake an annual actuarial study to determine whether what the NFIP is collecting in revenue is sufficient to cover its long-term expected losses. It would also require FEMA to prioritize maintaining a reserve fund to help avoid having to borrow more from the Treasury and getting further into debt.

A disaster relief measure passed in October included $16 billion in debt relief for the NFIP so that it would not run out of money while paying current hurricane claims.

The Duffy bill is expected to increase revenues from NFIP policyholders while also reducing the actual number of homeowners likely to purchase coverage from NFIP. It would reduce direct spending by NFIP by $187 million from 2018 to 2027, according to the CBO.

Insurance Groups

Insurance agents gave the House measure a somewhat mixed review, welcoming its long-term extension of the NFIP but criticizing its cutting back of payments to WYO private insurance companies by three percent.

The government reimburses the WYO flood insurance companies for the expenses of administering flood insurance policies. Agent commissions are not paid directly by the government, but instead are paid by WYO companies from the expense allowance.

“The cuts to the WYO program may have an impact on Main Street businesses that sell flood policies,” said Charles Symington, Big “I” senior vice president of external, industry and government affairs. “Big ‘I’ agents are the primary sales force for flood insurance, and they play an integral role in helping consumers make informed decisions about the coverages they purchase for their properties. The cuts proposed in this bill can lead to less consumer choice for homeowners who want to purchase flood coverage.”

Insurance carriers had similar reactions.

“The bill that passed the House today includes a number of important reforms that streamline and reduce unnecessary burdens in the program,” said Nat Wienecke, senior vice president, federal government relations at the Property Casualty Insurers Association of America (PCI). He also said the bill would expand consumers’ flood options and makes “meaningful structural reforms” that improve the solvency of the program.

“PCI, however, is concerned that the bill would make cuts to the Write Your Own companies that partner with FEMA to administer the NFIP,” said Wienecke.

PCI said that since 2004, the number of private WYO insurers declined from 107 to fewer than 70, more than a 35 percent drop.

“Cutting the reimbursement under the WYO program may make for good politics but it will ultimately only hurt the consumers that Congress claims to want to protect,” said Jimi Grande, senior vice president of government affairs for NAMIC. He said that less than 10 percent of U.S. insurers participate in the WYO program, and warned that making it more costly to do so “will likely mean even fewer choices for the same consumers who benefit from competition in the market.”

Democrats and Others

Rep. Maxine Waters, (D-Calif.), ranking member of the House Financial Services Committee, praised Hensarling and Duffy for their efforts at bipartisanship on the bill but withheld support for the final measure because she said it would hurt low and middle income homeowners.

“This bill will punish lower- and middle-class Americans with increased premiums, surcharges, and reserve fund assessments. In the wake of a historic hurricane season that devastated so many communities, it is unconscionable that we are considering a bill that would make flood insurance less affordable. We should be focusing on providing additional disaster relief and recovery after these devastating storms, not punishing these communities with higher premiums and surcharges,” Waters said.

Waters criticized the provision allowing businesses to opt-out of the flood insurance mandate.

She also claimed that the bill could encourage local or regional foreclosure crises by allowing the NFIP to prohibit coverage for any home with claims that – over the entire history of the property, even if it changes hands – exceed three times the replacement value of the structure. “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,” she warned.

Rep. Kathy Castor (D-Fla.) argued that the Republican bill will “increase costs for many policyholders” in her state, “without providing the necessary resources” for communities to build more resilient infrastructure. “Increasing rates will not address the solvency of NFIP and will actually worsen the burden on FEMA and taxpayers,” she said.

Republican sponsor Duffy pushed back on claims that the bill would hurt homeowners by raising premiums.

“I hear my friends say, ‘you’re going to hurt homeowners, the rates are going to skyrocket.’ What? On average, for a year, the price of flood insurance, on average, will go up twenty dollars- less than two dollars a month- and they’re screaming bloody murder about that?” he stated.

He said “highly-subsidized properties” will pay more but the bill also contains $1 billion more to help homeowners flood-proof their homes and funds to help communities with their flood mapping.

In remarks on the House floor, Duffy continued:

“We set up a private market. Now, you don’t have to take the private market, but you have an option to get a private plan that might have a better rate than the government offers you. You have a choice. A choice. God forbid a choice. That gives you a better price. And by the way, when we get the private market in, we offload our risk to the private sector. So when a disaster hits Texas or Florida, it’s not just the taxpayers that bear all the burden. We have private companies in play. That’s a great thing. This is a good bill. This is a bipartisan bill. Let’s stand together and reform a program to help the homeowner and our national debt. I yield back.”

The American Academy of Actuaries’ Casualty Practice Council supported the bill but urged further reforms including:

• Eliminating artificial pricing disparities that could arise due to debt and flood mapping surcharges imposed on NFIP policies but not on private insurance coverage.
• Focusing more attention on repetitive loss properties to reduce overall losses in the program.
• Providing additional funding for pre-flood mitigation efforts.
• Taking into account rising sea level and its likely financial impact on the NFIP.

SmarterSafer.org, a national coalition of taxpayer advocates, environmental groups, business organizations and mitigation advocates, applauded House adopting many of the measures outlined in its NFIP proposal, such as investing in mapping and mitigation, addressing affordability and providing consumer choice in the flood insurance marketplace.

But there is still work to do.

“As the bill moves to the Senate, our coalition will work closely to ensure that the final reauthorization package includes additional provisions that require property level data in mapping, nature-based community mitigation measures, continued movement toward risk-based rates and ways to convert affordability assistance into mitigation where cost-effective,” SmarterSafer said in written comments.

*This story appeared previously in our sister publication Insurance Journal.