The Reauthorization of the National Flood Insurance Program: FEMA’s Perspective
Hearing on the reauthorization of the National Flood Insurance Program.
Witness:- David Maurstad, Assistant Administrator, Federal Insurance Directorate, Federal Emergency Management Agency (FEMA)
Floods are the most common, most expensive, and most deadly natural disaster that communities across the United States experience. Reports reveal approximately 90 percent of all U.S. natural disasters also involve flooding from any number of sources, including inland flooding, flash floods, and flooding from seasonal storms.
While such events have long been a concern, recent experiences have shown that flooding has become both more frequent and severe. The Federal Emergency Management Agency’s (FEMA) 50+ year old National Flood Insurance Program (NFIP), which is by far the nation’s leading provider of flood insurance coverage, has experienced two of its top five, four of its top ten, and ten of its top 20 costliest flood events all in the last decade alone.
Previously, the NFIP dealt with only two $1+ billion flood events prior to its most costly flood, which was Hurricane Katrina in 2005. Since then, the NFIP has experienced eight $1+ billion flood events.
The NFIP’s last formal 5-year reauthorization expired at the end of September 2017. Since then, the NFIP has been subject to three brief lapses and 25 short-term extensions, nearly all of which have been enacted as a part of the congressional appropriations process and not through legislation initiated by the Financial Services Committee.
Reauthorization of the National Flood Insurance Program: Administration Perspectives
THE Committee on Banking, Housing, and Urban Affairs will meet in open session, hybrid format to conduct a hearing entitled, “Reauthorization of the National Flood Insurance Program: Administration Perspectives.”
Witness:- David I. Maurstad, Associate Administrator for Resilience (Acting), Federal Emergency Management Agency
Reauthorization and Reform of the National Flood Insurance Program
- Carolyn Kousky, Executive Director, Wharton Risk Center
- Karen McHugh, Missouri State NFIP Coordinator
- Ariel Rivera-Miranda, Founder and Agency Principal, Deer Insurance
- Roy Wright, President & CEO, Insurance Institute for Business and Home Safety
- H.R. , the “The National Flood Insurance Program Reauthorization Act of 2022.” (Rep. Waters)
- H.R. 7842, the “The Protecting Families and the Solvency of the National Flood Insurance Program Act of 2022.” (Rep. Casten)
- H.R. , the “The National Flood Insurance Program Administrative Reform Act of 2022.” (Rep. Velázquez)
- H.R. , a bill to cancel the indebtedness of the National Flood Insurance Program, and for other purposes. (Rep. Waters)
- H.R. , a bill to limit the annual increases in premiums and surcharges under the National Flood Insurance Program, and for other purposes.
The last long-term reauthorization of the NFIP occurred when Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12), which was subsequently amended by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). Since the end of fiscal year (FY) 2017, the NFIP has had 19 short-term reauthorizations and has even experienced brief lapses. According to the National Association of Realtors, an estimated 40,000 home sales are lost or interrupted every month that the NFIP’s authority lapses. The NFIP’s authorization is currently set to expire on September 30, 2022. In the event of a lapse, the NFIP will be unable to enter into new flood insurance contracts, which will lead to widespread market instability due to the stalling of mortgage processing for homes that are statutorily required to have flood insurance.
On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act, which included $3.5 billion for flood mitigation and $500 million in grants to states for revolving loans for hazard mitigation through a new program called the Safeguarding Tomorrow through Ongoing Risk Mitigation (STORM) Act. On November 19, 2021, the House passed the Build Back Better Act, which includes provisions to forgive the NFIP’s $20.5 billion in debt and invests $600 million in setting up an affordability program for low-income policyholders, as well as $600 million toward updating flood maps. According to FEMA, the NFIP saves the nation an estimated $1.87 billion annually in flood losses avoided because of the NFIP’s building and floodplain management regulations.
Until 2021, FEMA had not updated its methodology for setting NFIP premium rates since the 1970s, when it adopted a risk rating method that accounts only for the 1% annual chance of fluvial and coastal flooding. In coordination with the US Army Corps of Engineers, US Geological Survey, and other experts, FEMA has now developed a new risk rating methodology, known as Risk Rating 2.0 (RR2). RR2 went into effect for new policyholders on October 1, 2021, and for new policyholders on April 1, 2022. RR2 is designed to more accurately “reflect an individual property’s risk, reflect more types of flood risk in rates, use the latest actuarial practices to set risk-based rates, provide rates that are easier to understand for agents and policyholders, and reduce complexity for agents to generate a flood insurance quote.”