Once again, just in the nick of time, on Friday, December 21, 2018, Congress reauthorized the National Flood Insurance Program (NFIP) until May 31, 2019.
There was widespread industry joy following this development. For example, the National Association of Professional Insurance Agents (PIA) released a statement that said that it was pleased that Congress passed a bill to reauthorize the NFIP, observing that a lapse “would have disrupted the lives of millions of NFIP policyholders.”
Jon Gentile, PIA’s national vice president of government relations, said, “An extension to May 31 will allow members of the incoming 116th Congress time to find a way to agree on reforms to the program and to pass a long-term reauthorization.
Initial FEMA response
On December 26, however, after the federal government’s partial shutdown, FEMA announced that, due to the lapse in annual appropriations for the Department of Homeland Security, the annual appropriation for the NFIP also had lapsed.
FEMA said that the NFIP was continuing to pay flood insurance claims, but FEMA advised write your own (WYO) companies that the sale of new insurance policies and renewal of lapsing policies may be affected because of the lapse in appropriation. FEMA reasoned that this was because WYO companies are entitled to a fee from the sale or renewal of flood insurance policies and that such a fee “may be considered an impermissible funding obligation during a lapse of annual appropriations.”
In light of this, the NFIP sent a message to its industry partners providing guidance to suspend sales operations as a result of the current lapse.
FEMA said that it was aware of the concerns regarding this situation — especially given that Congress had reauthorized the NFIP — and said that it was “actively working with external stakeholders to assess the impact and determine what options exist to enable the NFIP to allow the sale and renewal of flood insurance policies to continue.” FEMA said that policies in effect on or before December 21, 2018 remained in force, and that NFIP insurers would continue to pay claims under those policies during a lapse.
Additionally, FEMA pointed out, although an expiring flood insurance policy may not be renewed during the lapse, there was a 30-day grace period — beginning at the end of the specific policy’s term — during which the policy still was effective.
FEMA reversed course on Dec. 28
A bipartisan group of lawmakers and business groups quickly pressed for a reversal of FEMA’s decision to halt flood insurance sales. They pointed out that FEMA’s action contradicted Congress’ passage of a six-month extension of the NFIP on the evening of December 21, just hours before the government shutdown began.
Following this widespread expressions of concern, FEMA reversed course.
On December 28, 2018, FEMA announced that it was resuming the sale of new insurance policies and the renewal of expiring policies and that it was rescinding the guidance it previously had issued to industry partners to suspend sales operations as a result of the current lapse in annual appropriations.
In its statement, FEMA said that, “As of this evening, all NFIP insurers have been directed to resume normal operations immediately and advised that the program will be considered operational since December 21, 2018 without interruption.”
This development also was met with appreciation. For example, the president of the National Association of Realtors, John Smaby, said in a statement, “This new decision means thousands of home sale transactions in communities across the country can go forward without interruption, as Congress intended when it renewed the flood insurance program earlier this week. Our research has shown that 40,000 home sales are lost every month that flood insurance is not available.”