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.
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
Senate Banking, Housing, and Urban Affairs Committee
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
Legislation:
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.”
House Financial Services Committee
Housing, Community Development and Insurance Subcommittee