In the meantime, 30 Senate co-sponsors, mostly from coastal states, are backing the "Homeowner Flood Insurance Affordability Act" (S. 1846), (introduced by Sens. Robert Menendez (D-N.J.) and Johnny Isakson (R-Ga.)). That bill would delay for four years the implementation of certain provisions of the 2012 Flood Insurance Reform Act, including rate increases intended to help the NFIP become financially solvent by bringing rates more in line with actual flooding risks. The Homeowner Flood Insurance Affordability Act may see formal Senate consideration as early as this month.
The following overview and related references are provided for background on the NFIP, its history of financial insolvency, and the most recent (2012) substantive attempt to reform the program.
National Flood Insurance Program
Established in 1968 through the National Flood Insurance Act of 1968 (P.L. 90-448), the NFIP
Unlike typical insurance policies
(such as automobile or homeowner’s insurance), where insurers issue policies
with risk-based premiums (i.e., policyholders that are more at risk pay more
for their insurance coverage), the actual premiums that policyholders pay for flood
insurance do not accurately reflect their property’s flooding risk. This is because FEMA administers the NFIP by
providing only limited (capped) coverage and by subsidizing many policies,
including properties that are most at risk of flooding and buildings built
prior to the adoption of FIRMs.
Flood Insurance Premium Subsidies
As NFIP was first being
implemented in the 1970s, premium subsidies were believed to be necessary
because property owners in higher flood-risk areas could not accurately
estimate flood risk (no flood insurance rate maps were available), and because the
prospect of receiving subsidies was thought to provide an incentive for local
communities to participate in the NFIP (by developing local floodplain
management regulations and building standards). It was the intent of the
federal government to phase out insurance premium subsidies as local floodplain
management practices were strengthened.
Had that phase-out occurred as intended, the NFIP should have ultimately reduced the federal government’s responsibility for flood losses. However, rate subsidies have remained in place, and the NFIP has become financially insolvent while failing to meet the original 1968 Act objectives (noted above). (When it cannot fulfill its claim responsibilities, the FEMA borrows money from the U.S. Treasury to pay its NFIP claims.)
National Flood Insurance Act
Amendments
The NFIP has been amended several
times since 1968 (including in 1973, 1982, 1994 and 2004). Most recently, the Biggert-Waters Flood
Insurance Reform Act of 2012 reauthorized the NFIP through September 30, 2017,
and amended the 1968 law in an effort
to improve the NFIP’s financial solvency and limit federal exposure to flood
loss costs (the Biggert-Waters Act became law under Public Law No: 112-141). The intent of the Act is to
provide insurance premium rates that accurately reflect flood risk, based on the understanding that higher insurance costs are necessary to signal actual risk.
Based on flood risks represented
by FIRMs, the Biggert-Waters Act would eliminate federal insurance subsidies
and reduce a cap on annual premium increases, thus making flood insurance premiums
more realistically risk-based than in the past. The Biggert-Waters Act also would
eliminate insurance payments for properties that experience severe repetitive flooding
losses.
Flood Insurance Rate Maps
FIRMs are used in part to
determine flood insurance rates, control floodplain development through establishment of building codes, and communicate flood risk to the public. However, FIRMs are
based on retrospective evaluations of past conditions and have been shown to be
inaccurate predictors of future flood risk.
This inherent inaccuracy has been a major challenge to FEMA as it
attempts to determine accurate flood risks and associated insurance rates. Further, the inaccurate maps communicate a
misleading message to property owners and local planning officials, as they attempt
estimate risks related to developing, building or staying in flood-prone
areas.
FEMA is currently in the process
of updating its maps through a Risk Mapping, Assessment and Planning (or “Risk MAP”) process designed to “deliver quality
data that increases public awareness and leads to action that reduces risk to
life and property,” according to FEMA.
The Risk MAP updates will almost certainly increase the number of
properties that fall under the purview of NFIP, but will also very likely still
underestimate the number of people and properties at risk of flooding; in part because
Risk MAP updates are not permitted to incorporate future climate
change-influenced flooding scenarios (predicated upon rising sea levels, or
increased storm intensities, for example).
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Additional resources
- King, Rawle O. February 2013. “The National Flood Insurance Program: Status and Remaining Issues for Congress.” Congressional Research Service Report No. R428450. The report identifies and presents some key flood management issues for congressional consideration, and concludes with a discussion of policy options for the future financial management of flood hazards.
- AECOM, 2013 (for the Federal Emergency Management Agency). “The Impact of Climate Changeand Population Growth on the National Flood Insurance Program.” The report in part evaluates the likely impact of climate change and population growth on the National Flood Insurance Program.
- FEMA. September 24, 2013. “Community Rating System (CRS) and Their Classes.” Provides an overview of the voluntary Community Rating System program for National Flood Insurance Program-participating communities.
