Filed Under:Agent Broker, Personal Insurance Business

Flood Bill Signed Into Law

Years of Political Stalemate Ended

NU Online News Service, July 9, 11:33 a.m. EDT

WASHINGTON—President Obama late Friday signed legislation that reauthorizes the National Flood Insurance program until Sept. 30, 2017, ending years of political stalemate.

The signing marks the first time since 2004 that a new NFIP reauthorization has gone into effect, and ends a political impasse that began in 2007, when debate opened in the House on legislation that would replace the NFIP reauthorization legislation enacted in 2003.

The program has been extended for short intervals 17 times since its authorization first ran out Sept. 30, 2008, according to data compiled by officials of the House Financial Services Committee.

The program temporarily lost authorization four times, mostly in 2011, resulting in postponement of house sale closings in communities where flood insurance is mandatory for 53 days, according to the FSC and industry officials.

The law, Title II of H.R. 4348, the Surface Transportation Extension Act of 2012, is part of a transportation bill. 

Key highlights include allowing the Federal Emergency Management Agency to raise rates a maximum of 20 percent annually, as compared to 10 percent annually under the current program.

It also mandates that owners of second homes, properties with repetitive flood claims and commercial properties will go up 20 percent over the next five years, raising them to actuarially-adjusted fees. That will be effective July 1.

The bill reiterates FEMA’s authority to buy private reinsurance to back the program, which is aimed at reducing FEMA’s reliance on Treasury loans to fund the program.

The reforms are projected to generate an additional $2.7 billion in new revenues over 10 years, according to the Congressional Budget Office.

“At long last our government has signed into law meaningful NFIP reform,” said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies.

He noted that the core legislation passed the Insurance Subcommittee of the House Financial Services Committee more than a year ago, and “ensures that Americans have access to flood insurance and just as important, that the NFIP will begin to charge adequate rates.”

Grande says the bill “should place the NFIP on the path to a more sound fiscal footing.”

Tom Litjen, vice president of federal government relations for the Property Casualty Insurers Association of America adds that the signing “is a momentous occasion” adding, “This legislation will bring much needed certainty to flood-prone communities and greater stability for the housing market.”

Robert Rusbuldt, president and chief executive officer of the Independent Insurance Agents and Brokers of America, commends President Obama and Congress for working together, saying “The IIABA looks forward to the implementation of the many provisions that will help put the program on more solid financial footing.”

Despite the sigh of relief that long-term certainty has been achieved, some industry officials are privately voicing concern about two areas of the bill.

One is removal of a provision that mandates that homeowners who live behind levees and other flood control structures buy flood insurance.

The other is the provision raising rates to market level within four years on second homes and vacation properties.

The concern is that allowing homeowners and businesses that live in areas behind levees to escape paying into the program will reduce revenues and that those being forced to pay market rates for second homes and vacation properties will decide to buy private insurance. That move would rob the program of needed revenues, and throw off the calculations used by the Congressional Budget Office to project higher revenues through the reforms included in the program, the officials said.

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