National Flood Insurance Program: Selected Issues and Legislation in the 115th Congress
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National Flood Insurance Program: Selected
Issues and Legislation in the 115th Congress
(name redacted)
Analyst in Flood Insurance and Emergency Management
Updated July 31, 2018
Congressional Research Service
7-....
www.crs.gov
R45099
National Flood Insurance Program: Selected Issues and Legislation in the 115th Congress
Summary
The National Flood Insurance Program (NFIP) was established by the National Flood Insurance
Act of 1968 (NFIA, 42 U.S.C. §4001 et seq.), and was most recently reauthorized until November
30, 2018 (P.L. 115-225). The general purpose of the NFIP is both to offer primary flood insurance
to properties with significant flood risk, and to reduce flood risk through the adoption of
floodplain management standards. A longer-term objective of the NFIP is to reduce federal
expenditure on disaster assistance after floods. The NFIP also engages in many “non-insurance”
activities in the public interest: it disseminates flood risk information through flood maps,
requires community land use and building code standards, and offers grants and incentive
programs for household- and community-level investments in flood risk reduction. Unless
reauthorized or amended by Congress, the following will occur on November 30, 2018: (1) the
authority to provide new flood insurance contracts will expire and (2) the authority for NFIP to
borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion.
The House passed H.R. 2874, the 21st Century Flood Reform Act, on November 14, 2017, on a
vote of 237-189. H.R. 2874 would authorize the NFIP until September 30, 2022. Three bills have
been introduced in the Senate to reauthorize the NFIP: S. 1313 (Flood Insurance Affordability
and Sustainability Act of 2017), S. 1368 (Sustainable, Affordable, Fair, and Efficient [SAFE]
National Flood Insurance Program Reauthorization Act of 2017), and S. 1571 (National Flood
Insurance Program Reauthorization Act of 2017). None of these bills have yet been taken up by
the committee of jurisdiction. Issues which Congress may consider in the context of
reauthorization include (1) NFIP solvency and debt; (2) premium rates and surcharges; (3)
affordability; (4) increasing participation in the NFIP; (5) the role of private insurance and
barriers to private sector involvement; (6) recurrent flooding and properties with multiple losses;
(7) administrative reforms; (8) non-insurance functions of the NFIP such as floodplain mapping
and flood mitigation; and (9) future flood risks, including future catastrophic events.
The Federal Emergency Management Agency (FEMA) has identified the need to increase flood
insurance coverage across the nation as a major priority for the current reauthorization and
beyond, with a goal of doubling flood insurance coverage by 2023 through the increased sale of
both NFIP and private policies. The NFIP’s premium rates do not reflect the full risk of loss
because of various legislative requirements, which may exacerbate the program’s fiscal exposure.
The categories of properties which pay less than the full risk-based rate are determined by the
date when the structure was built relative to the date of adoption of the Flood Insurance Rate
Map, rather than the flood risk or the ability of the policyholder to pay. A reformed NFIP rate
structure could have the effect of encouraging more private insurers to enter the primary flood
market; however, full risk-based premiums could be unaffordable for some households.
Although the NFIP has always had borrowing authority from Congress, an approach has not been
developed by which the NFIP can repay catastrophic flood losses. To ensure the future financial
solvency of the NFIP after catastrophic events, FEMA has suggested that a systematic analysis
may consider the costs and benefits of using the reserve fund, borrowing authority, reinsurance,
other forms of risk transfer, and perhaps a Treasury backstop at some catastrophic loss level.
This report summarizes key insurance reform provisions in recent legislation, identifies issues for
congressional consideration as part of the possible reauthorization of the NFIP, and describes
selected provisions which relate to the issues listed above in the bill to reauthorize the NFIP
passed by the House (H.R. 2874, the 21st Century Flood Reform Act) and the bills yet to be
considered by the Senate (S. 1313, S. 1368, and S. 1571).
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National Flood Insurance Program: Selected Issues and Legislation in the 115th Congress
Contents
Introduction ..................................................................................................................................... 1
Expiration of Certain NFIP Authorities ........................................................................................... 2
Legislative Action in the 115th Congress ......................................................................................... 3
Potential Issues for Consideration by Congress .............................................................................. 3
NFIP Debt and Solvency of the Program .................................................................................. 4
NFIP Premiums and Surcharges ......................................................................................... 5
Premium Subsidies and Cross-Subsidies ............................................................................ 6
Pre-FIRM Subsidy ........................................................................................................ 6
Newly Mapped Subsidy................................................................................................ 8
Grandfathering .............................................................................................................. 8
Summary ....................................................................................................................... 9
Provisions Related to Premiums and Surcharges in H.R. 2874 .................................... 9
Provisions Related to Premiums and Surcharges in Senate Bills ................................ 11
NFIP Borrowing from Treasury ........................................................................................ 12
Provisions Related to NFIP Debt in Senate Bills........................................................ 14
Affordability of Flood Insurance ...................................................................................... 14
Provisions Related to Affordability in H.R. 2874 ....................................................... 16
Provisions Related to Affordability in Senate Bills .................................................... 17
Increasing Participation in the NFIP ................................................................................. 17
Provisions Related to Increasing NFIP Participation in H.R. 2874 ............................ 21
Provisions Related to Increasing NFIP Participation in Senate Bills ......................... 21
The Role of Private Insurance in U.S. Flood Coverage .......................................................... 21
Barriers to Private Sector Involvement ............................................................................. 23
Potential Effects of Increased Private Sector Involvement on the NFIP .......................... 24
Reinsurance ....................................................................................................................... 25
Provisions Related to Private Insurance in H.R. 2874................................................ 26
Provisions Related to Private Insurance in Senate Bills ............................................. 28
Properties with Multiple Losses .............................................................................................. 29
Provisions Related to Multiple-Loss Properties in H.R. 2874 .......................................... 30
Provisions Related to Multiple-Loss Properties in Senate Bills ....................................... 32
Increased Cost of Compliance (ICC) Coverage ...................................................................... 32
Proposed Changes to Increased Cost of Compliance Coverage in H.R. 2874 .................. 33
Proposed Changes to Increased Cost of Compliance Coverage in Senate Bills ............... 33
Administrative Reforms .......................................................................................................... 34
Disclosure Requirements .................................................................................................. 34
Provisions Related to Disclosure Requirements in H.R. 2874 ................................... 34
Provisions Related to Disclosure Requirements in Senate Bills................................. 34
Non-Insurance Functions of the NFIP .................................................................................... 35
Floodplain Mapping .......................................................................................................... 35
Funding for Floodplain Mapping................................................................................ 37
Provisions Related to Floodplain Mapping in H.R. 2874 ........................................... 38
Provisions Related to Floodplain Mapping in Senate Bills ........................................ 39
Flood Mitigation ............................................................................................................... 40
Provisions Related to Flood Mitigation in H.R. 2874 ................................................ 42
Provisions Related to Flood Mitigation in Senate Bills.............................................. 42
Future Flood Losses ................................................................................................................ 43
Flooding Outside the SFHA.............................................................................................. 44
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National Flood Insurance Program: Selected Issues and Legislation in the 115th Congress
Future Catastrophic Events ............................................................................................... 45
Concluding Comments .................................................................................................................. 47
Figures
Figure 1. Residential Penetration Rates of NFIP Flood Insurance in Texas .................................. 19
Figure 2. Residential Penetration Rates of NFIP Flood Insurance in Florida ............................... 20
Tables
Table 1. Provisions in NFIP Reauthorization Legislation in the 115th Congress ........................... 48
Contacts
Author Contact Information .......................................................................................................... 53
Congressional Research Service
National Flood Insurance Program: Selected Issues and Legislation in the 115th Congress
Introduction
Congress is currently considering reauthorization of the National Flood Insurance Program
(NFIP). The House passed a reauthorization bill (H.R. 2874) in November 2017, and three bills
have been introduced in the Senate, but so far the NFIP has received a series of short-term
reauthorizations. The debate over a longer reauthorization of the NFIP is taking place during the
2018 hurricane season, and in the aftermath of the 2017 hurricane season, which produced
widespread flooding and renewed concern about the structure of the NFIP and its solvency in the
face of catastrophic flood losses.
The NFIP is authorized by the National Flood Insurance Act of 19681 and was reauthorized until
September 30, 2017, by the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12).2
Congress amended elements of BW-12, but did not extend the NFIP’s authorization further in the
Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).3 The NFIP received a shortterm reauthorization through December 8, 2017,4 a second short-term reauthorization through
December 22, 2017,5 and a third short-term reauthorization through January 19, 2018.6 The NFIP
lapsed between January 20 and January 22, 2018, and received a fourth short-term reauthorization
until February 8, 2018.7 The NFIP lapsed for approximately eight hours during a brief
government shutdown in the early morning of February 9, 2018, and was then reauthorized until
March 23, 2018.8 The NFIP received a sixth reauthorization until July 31, 2018,9 and a seventh
reauthorization until November 30, 2018.10
The NFIP is managed by the Federal Emergency Management Agency (FEMA), through its
subcomponent Federal Insurance and Mitigation Administration (FIMA). The general purpose of
the NFIP is both to offer primary flood insurance to properties with significant flood risk, and to
reduce flood risk through the adoption of floodplain management standards. A longer-term
objective of the NFIP is to reduce federal expenditure on disaster assistance after floods. The
NFIP is discussed in more detail in CRS Report R44593, Introduction to the National Flood
Insurance Program (NFIP), by (name redacted) and (name redacted)
. A brief overview of private
flood insurance in the NFIP is given in CRS Insight IN10450, Private Flood Insurance and the
National Flood Insurance Program (NFIP), by (name redacted) and (name redacted)
.
The NFIP is the primary source of flood insurance coverage for residential properties in the
United States. As of May 2018, the NFIP had over 5 million flood insurance policies providing
over $1.28 trillion in coverage. The program collects nearly $3.6 billion in annual premium
revenue.11 Nationally, as of July 2018, 22,322 communities in 56 states and jurisdictions
1 Title XIII of P.L. 90-448, as amended, 42 U.S.C. §§4001 et seq.
2 Title II of P.L. 112-141.
3 P.L. 113-89.
4 P.L. 115-56, Division D, §130.
5 P.L. 115-90.
6 P.L. 115-96.
7 P.L. 115-120.
8 P.L. 115-123.
9 P.L. 115-141, Division M, Title III.
10 P.L. 115-225.
11 Statistics on the National Flood Insurance Program (NFIP) policy and claims are available from the Federal
Emergency Management Agency (FEMA) website at https://www.fema.gov/policy-claim-statistics-flood-insurance.
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participated in the NFIP.12 According to FEMA, the program saves the nation an estimated
$1.87 billion annually in flood losses avoided because of the NFIP’s building and floodplain
management regulations.13 FEMA expects this amount to increase over time as additional new
construction is built to increasingly better standards.14
Floods are the most common natural disaster in the United States, and in recent years all 50 states
have experienced flood events.15 U.S. flood losses in 2016 were about $17 billion, with losses
from five individual flood-related events in 2016 exceeding $1 billion.16 2017 was the most costly
year for U.S. hurricane losses on record. Losses from the Midwest flooding in April and May
2017 are estimated at $1.7 billion and losses from the California flooding in February 2017 at
$1.5 billion.17 The total for the 2017 hurricanes significantly exceeds the previous record of
$214.8 billion (CPI-adjusted), from the 2005 hurricane season.18 Total losses (insured and
uninsured) for the 2017 hurricane season are estimated at a record $270.3 billion, with losses for
Hurricane Harvey estimated at $127.5 billion, Hurricane Maria at $91.8 billion, and Hurricane
Irma at $51.0 billion.19
This report summarizes key insurance reform provisions in recent legislation and identifies key
issues for congressional consideration as part of the possible reauthorization of the NFIP. It
describes selected provisions in the bill to reauthorize the NFIP passed by the House (H.R. 2874,
the 21st Century Flood Reform Act) and the bills introduced in the Senate that relate to the issues
discussed in the report. The provisions discussed in the report are listed in Table 1 at the end of
this report.
Expiration of Certain NFIP Authorities
The statute for the NFIP does not contain a comprehensive expiration, termination, or sunset
provision for the whole of the program. Rather, the NFIP has multiple different legal provisions
that generally tie to the expiration of key components of the program. Unless reauthorized or
amended by Congress, the following will occur on November 30, 2018:
The authority to provide new flood insurance contracts will expire.20 Flood
insurance contracts entered into before the expiration would continue until the
end of their policy term of one year.
12 Based on FEMA’s map inventory, 98.8% of the U.S. population is mapped with an existing flood map. Over 88% of
the population lives in a community that has received a modernized product (email correspondence from FEMA
Congressional Affairs staff, April 20, 2017). Detailed information about which communities participate and where is
available from the Community Status Book, found on FEMA’s website at https://www.fema.gov/national-floodinsurance-program-community-status-book.
13 Email correspondence from FEMA Congressional Affairs staff, June 16, 2017.
14 U.S. Government Accountability Office (GAO), Flood Insurance: Comprehensive Reform Could Improve Solvency
and Enhance Resilience, GAO-17-425, April 2017, p. 5, https://www.gao.gov/products/GAO-17-425.
15 See the NFIP FloodSmart website at https://www.floodsmart.gov/floodsmart/pages/flood_facts.jsp.
16 CoreLogic, 2016 Natural Hazard Risk Summary and Analysis, January 26, 2017, https://www.corelogic.com/
insights/natural-hazard-risk-summary-and-analysis.aspx.
17 NOAA National Centers for Environmental Information, Billion-Dollar Weather and Climate Disasters: Table of
Events, https://www.ncdc.noaa.gov/billions/events/US/2017.
18 NOAA National Centers for Environmental Information, Billion-Dollar Weather and Climate Disasters: Overview,
https://www.ncdc.noaa.gov/billions/overview.
19 Note that these figures include losses due to wind damage as well as flood damage.
20 42 U.S.C. §4026.
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The authority for NFIP to borrow funds from the Treasury will be reduced from
$30.425 billion to $1 billion.21
Other activities of the program would technically remain authorized following November 30,
2018, such as the issuance of Flood Mitigation Assistance (FMA) grants.22
Legislative Action in the 115th Congress
The House Financial Services Committee completed markup on June 21, 2017, of seven bills23 to
reform and reauthorize the NFIP. The 21st Century Flood Reform Act (H.R. 2874) came to the
House floor under H.Res. 616, and included provisions from the six other bills. H.R. 2874 passed
the House on a vote of 237-189 on November 14, 2017. H.R. 2874 would authorize the NFIP
until September 30, 2022.
Three bills have been introduced in the Senate that reauthorize the expiring provisions of the
NFIP: S. 1313 (Flood Insurance Affordability and Sustainability Act of 2017), S. 1368
(Sustainable, Affordable, Fair, and Efficient [SAFE] National Flood Insurance Program
Reauthorization Act of 2017),24 and S. 1571 (National Flood Insurance Program Reauthorization
Act of 2017). None of these bills have yet been considered by the committee of jurisdiction. S.
1313 would authorize the NFIP until September 30, 2027; S. 1368 would authorize the NFIP until
September 30, 2023; and S. 1571 would authorize the NFIP until September 30, 2023.
The remainder of this report will summarize relevant background information and proposed
changes to selected areas of the NFIP in H.R. 2874, S. 1313, S. 1368, and S. 1571. The report
does not examine every provision in detail, but focuses on selected provisions that would
introduce significant changes to the NFIP, particularly those related to the issues identified by the
Government Accountability Office (GAO) described below.
Potential Issues for Consideration by Congress
In a recent report, GAO examined actions which Congress and FEMA could take to reduce
federal fiscal exposure and improve national resilience to floods, and recommended that Congress
should consider comprehensive reform covering six areas: (1) outstanding debt; (2) premium
rates; (3) affordability; (4) consumer participation; (5) barriers to private sector involvement; and
(6) NFIP flood resilience efforts.25 This report will discuss the areas identified by GAO as well as
additional issues which Congress may wish to consider.
As a public insurance program, the goals of the NFIP were originally designed differently from
the goals of private-sector companies. As currently authorized, the NFIP also encompasses social
21 42 U.S.C. §4016(a).
22 See 42 U.S.C. §4104c and 42 U.S.C. §4104d. The FMA program awards grants for a number of purposes, including
state and local mitigation planning; the elevation, relocation, demolition, or flood proofing of structures; the acquisition
of properties; and other activities. For additional information on the FMA Program, see 44 C.F.R. Part 78, FEMA’s
website at https://www.fema.gov/flood-mitigation-assistance-grant-program, and FEMA, FY2016 Flood Mitigation
Assistance (FMA) Grant Program Fact Sheet, February 15, 2016, http://www.fema.gov/media-library-data/
1455710459301-048a67862580037b30cd640a802a9053/FY16_FMA_Fact_Sheet.pdf.
23 H.R. 1422, H.R. 1558, H.R. 2246, H.R. 2565, H.R. 2868, and H.R. 2475, plus H.R. 2874.
24 A similar bill was introduced in the House, H.R. 3285.
25 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, pp. 1-2, https://www.gao.gov/products/GAO-17-425.
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goals to provide flood insurance in flood-prone areas to property owners who otherwise would
not be able to obtain it, and reduce government’s cost after floods.26 The NFIP also engages in
many “non-insurance” activities in the public interest: it disseminates flood risk information
through flood maps, requires communities to adopt land use and building code standards in order
to participate in the program, potentially reduces the need for other post-flood disaster aid,
contributes to community resilience by providing a mechanism to fund rebuilding after a flood,
and may protect lending institutions against mortgage defaults due to uninsured losses. The
benefits of such tasks are not directly measured in the NFIP’s financial results from underwriting
flood insurance.27
From the inception of the NFIP, the program has been expected to achieve multiple objectives,
some of which may conflict with one another
To ensure reasonable insurance premiums for all;
To have risk-based premiums that would make people aware of and bear the cost
of their floodplain location choices;
To secure widespread community participation in the NFIP and substantial
numbers of insurance policy purchases by property owners; and
To earn premium and fee income that, over time, covers claims paid and program
expenses.28
NFIP Issues For Consideration by Congress Discussed in This Report
“NFIP Debt and Solvency of the Program”
“Premium Subsidies and Cross-Subsidies”
“NFIP Borrowing from Treasury”
“Affordability of Flood Insurance”
“Increasing Participation in the NFIP”
“The Role of Private Insurance in U.S. Flood Coverage”
“Properties with Multiple Losses”
“Non-Insurance Functions of the NFIP”
“Future Flood Losses”
NFIP Debt and Solvency of the Program
GAO noted that competing aspects of the NFIP, notably the desire to keep flood insurance
affordable while making the program fiscally solvent, have made it challenging to reform the
program. Promoting participation in the program, while at the same time attempting to fund
claims payments with the premiums paid by NFIP policyholders, provides a particular
challenge.29 Throughout its history, the NFIP has been asked to set premiums that are
26 See 82 Stat. 573 for text in original statute (Section 1302(c) of P.L. 90-448). This language remains in statute (see 42
U.S.C. §4001(c)).
27 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program: Challenges
and Solutions, April 2017, p. 79, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
28 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, p. 3, at http://www.nap.edu/catalog/21709/affordability-of-national-flood-insuranceprogram-premiums-report-1.
29 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 1, https://www.gao.gov/products/GAO-17-425.
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simultaneously “risk-based” and “reasonable.” Different Administrations and Congresses have
placed varied emphases and priorities on those goals for premium setting.30
GAO has reported in several studies that NFIP’s premium rates do not reflect the full risk of loss
because of various legislative requirements, which exacerbates the program’s fiscal exposure.
GAO also noted in several reports that while Congress has directed FEMA to provide subsidized
premium rates for policyholders meeting certain requirements, it has not provided FEMA with
funds to offset these subsidies and discounts, which has contributed to FEMA’s need to borrow
from the U.S. Treasury to pay NFIP claims.31
NFIP Premiums and Surcharges
As of January 2018, the written premium on approximately 5 million policies in force was $3.5
billion.32 The maximum coverage for single-family dwellings (which also includes single-family
residential units within a 2-4 family building) is $100,000 for contents and up to $250,000 for
buildings coverage. The maximum available coverage limit for other residential buildings is
$500,000 for building coverage and $100,000 for contents coverage, and the maximum coverage
limit for non-residential business buildings is $500,000 for building coverage and $500,000 for
contents coverage.
Included within NFIP premiums are several fees and surcharges mandated by law on flood
insurance policies. First, the Federal Policy Fee (FPF) was authorized by Congress in 1990 and
helps pay for the administrative expenses of the program, including floodplain mapping and some
of the insurance operations.33 The amount of the Federal Policy Fee is set by FEMA and can
increase or decrease year to year. As of October 2017, the fee is $50 for Standard Flood Insurance
Policies (SFIPs), $25 for Preferred Risk Policies (PRPs),34 and $25 for contents-only policies.35
Second, a reserve fund assessment was authorized by Congress in BW-12 to establish and
maintain a reserve fund to cover future claim and debt expenses, especially those from
catastrophic disasters.36 By law, FEMA is required to maintain a reserve ratio of 1% of the total
loss exposure through the reserve fund assessment.37 As of February 2018, the amount required
for the reserve fund ratio was approximately $12.79 billion. However, FEMA is allowed to phase
in the reserve fund assessment to obtain the ratio over time, with an intended target of not less
than 7.5% of the 1% reserve fund ratio in each fiscal year (so, using February 2018 figures, not
less than approximately $959 million each year). The reserve fund assessment has increased from
30 National Academy of Sciences, Affordability of National Flood Insurance Program Premiums, Report 1,
Washington, DC, 2015, p. 47, https://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-programpremiums-report-1.
31 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 17, https://www.gao.gov/products/GAO-17-425.
32 For full statistics, including breakdown by states, see FEMA’s website at https://bsa.nfipstat.fema.gov/reports/
1011.htm.
33
42 U.S.C. §4014(a)(1)(B)(iii).
34 A Preferred Risk Policy is a Standard Flood Insurance Policy that offers low-cost coverage to owners and tenants of
eligible buildings located in moderate and low-risk flood zones in NFIP communities. See FEMA, Flood Insurance
Manual, Preferred Risk Policy Section, Revised April 2018, p. PRP 1, at https://www.fema.gov/media-library-data/
1523307331106-4cf9726b2eb04c3471a3e9d37a58fa6a/09_prp_508_apr2018.pdf.
35 See FEMA, Flood Insurance Manual, Rating Section, Revised April 2018, p. RATE 16, https://www.fema.gov/
media-library-data/1523307287100-4cf9726b2eb04c3471a3e9d37a58fa6a/05_rating_508_apr2018.pdf.
36 Section 100212 of P.L. 112-141, 126 Stat. 992, as codified at 42 U.S.C. §4017a.
37 42 U.S.C. §4017a(b).
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its original status, in October 2013, of 5% on all Standard Flood Insurance Policies and 0% on
Preferred Risk Policies.38 Since April 2016, FEMA has charged every NFIP policy a reserve fund
assessment equal to 15% of the premium.39 However, FEMA has stated that as long as the NFIP
maintains outstanding debt, it would expect that the reserve fund will not reach the required
balance, as amounts collected may be periodically transferred to Treasury to reduce the NFIP’s
debt.40
In addition to the reserve fund assessment, all NFIP policies are also assessed a surcharge
following the passage of HFIAA.41 The amount of the surcharge is dependent on the type of
property being insured. For primary residences, the charge is $25; for all other properties, the
charge is $250.42 Revenues from the surcharge are deposited into the reserve fund. The HFIAA
surcharge is not considered a premium and is currently not included by FEMA when calculating
limits on insurance rate increases.43
Premium Subsidies and Cross-Subsidies
Except for certain subsidies, flood insurance rates in the NFIP are directed to be “based on
consideration of the risk involved and accepted actuarial principles,”44 meaning that the rate is
reflective of the true flood risk to the property. However, Congress has directed FEMA not to
charge actuarial rates for certain categories of properties and to offer discounts to other classes of
properties in order to achieve the program’s objective that owners of existing properties in flood
zones could afford flood insurance. There are three main categories of properties which pay less
than full risk-based rates.
Pre-FIRM Subsidy
Pre-FIRM properties are those which were built or substantially improved before December 31,
1974, or before FEMA published the first Flood Insurance Rate Map (FIRM) for their
community, whichever was later.45 Therefore, by statute, premium rates charged on structures
built before they were first mapped into a flood zone that have not been substantially improved,
known as pre-FIRM structures, are allowed to have lower premiums than what would be expected
to cover predicted claims. The availability of this pre-FIRM subsidy was intended to allow
preexisting floodplain properties to contribute in some measure to pre-funding their recovery
from a flood disaster instead of relying solely on federal disaster assistance. In essence, the flood
insurance could distribute some the financial burden among those protected by flood insurance
and the public.
38 For additional information on the reserve fund, see FEMA, Quarterly NFIP Reserve Fund Report, June 15, 2016.
39 See Federal Emergency Management Agency, Flood Insurance Manual, Rating Section, Revised April 2018, p.
RATE 16, at https://www.fema.gov/media-library-data/1523307287100-4cf9726b2eb04c3471a3e9d37a58fa6a/
05_rating_508_apr2018.pdf.
40 GAO, High-Risk Series 2017: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others,
GAO-17-317, February 2017, p. 622, http://www.gao.gov/products/GAO-17-317.
41 Section 8(a) of P.L. 113-89, 128 Stat. 1023.
42 For a description of how the fee is applied to different policy types, see FEMA, The HFIAA Surcharge Fact Sheet,
April 2015, at https://www.fema.gov/media-library/assets/documents/105569.
43 See FEMA, NFIP Fact Sheet: The HFIAA Surcharge, April 2015, https://www.fema.gov/media-library/assets/
documents/105569.
44 42 U.S.C. §4014(a)(1).
45 42 U.S.C. §4015(c).
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BW-12 phased out almost all subsidized insurance premiums, requiring FEMA to increase rates
on certain subsidized properties at 25% per year until full-risk rates46 were reached: these
included secondary residences, businesses, severe repetitive loss properties,47 and properties with
substantial cumulative damage.48 Subsidies were eliminated immediately for properties where the
owner let the policy lapse, any prospective insured who refused to accept offers for mitigation
assistance, and properties purchased after or not insured by NFIP as of July 6, 2012. All
properties with subsidies not being phased out at higher rates, or already eliminated, were
required to begin paying actuarial rates following a five-year period, phased in at 20% per year,
after a revised or updated FIRM was issued for the area containing the property.49 Thus the
subsidies on pre-FIRM properties would have been eliminated within five years following the
issuance of a new FIRM to a community. As BW-12 went into effect, constituents from multiple
communities expressed concerns about the elimination of lower rate classes, arguing that it
created a financial burden on policyholders, risked depressing home values, and could lead to a
reduction in the number of NFIP policies purchased.50 Concerns over the rate increases created by
BW-12 led to the passage of HFIAA, which reinstated certain premium discounts and slowed
down some of the BW-12 premium rate increases.51 HFIAA repealed the property-sale trigger for
an automatic full-risk rate and slowed the rate of phaseout of the pre-FIRM subsidy for most
primary residences, allowing for a minimum and maximum increase in the amount for the
phaseout of pre-FIRM subsidies for all primary residences of 5%-18% annually.52 HFIAA
retained the 25% annual phaseout of the subsidy from BW-12 for all other categories of
properties.53 As of September 2016, approximately 16.1% of NFIP policies received a pre-FIRM
subsidy.54 Historically, the total number of pre-FIRM policies is relatively stable, but the
percentage of those policies by comparison to the total policy base has decreased.55
46 FEMA defines full-risk rates as those charged to a class of policies that generate premiums sufficient to pay the
group’s anticipated losses and expenses. See GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency
and Enhance Resilience, GAO-17-425, April 2017, p. 6, https://www.gao.gov/products/GAO-17-425.
47 Severe repetitive loss properties are those that have incurred four or more claim payments exceeding $5,000 each,
with a cumulative amount of such payments over $20,000; or at least two claims with a cumulative total exceeding the
value of the property. See 42 U.S.C. §4014(h) and 44 C.F.R. §79.2(h).
48 A property with substantial cumulative damage is any property that has incurred flood-related damage in which the
cumulative amounts of payments under the NFIP equaled or exceeded the fair market value of such property. See 42
U.S.C. §4014(a)(2)(C).
49 Section 100207 of P.L. 112-141. 126 Stat. 919.
50 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, p. 2, at http://www.nap.edu/catalog/21709/affordability-of-national-flood-insuranceprogram-premiums-report-1.
51
For a full comparison of changes in pre-FIRM subsidies under BW-12 and HFIAA, see Table 4 in CRS Report
R44593, Introduction to the National Flood Insurance Program (NFIP), by (name redacted) and (name redacted)
.
52 P.L. 112-141, 126 Stat. 917; and P.L. 113-89, 128 Stat. 1021-1022; respectively.
53 For a comparison of subsidy phaseouts in BW-12 and HFIAA, see CRS Report R44593, Introduction to the National
Flood Insurance Program (NFIP), by (name redacted) and (name redacted)
.
54 Email correspondence from FEMA Congressional Affairs staff, March 3, 2017.
55 For an historical prospective on the percentages of subsidized policies in the NFIP, see Figure 1 of GAO, Flood
Insurance: More Information Needed on Subsidized Properties, GAO-13-607, July 2013, p. 7, at http://www.gao.gov/
assets/660/655734.pdf.
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Newly Mapped Subsidy
HFIAA established a new subsidy56 for properties that are newly mapped into a Special Flood
Hazard Area (SFHA)57 on or after April 1, 2015, if the applicant obtains coverage that is effective
within 12 months of the map revision date. Certain properties may be excluded based on their
loss history.58 The rate for eligible newly mapped properties is equal to the PRP rate, but with a
higher Federal Policy Fee,59 for the first 12 months following the map revision. After the first
year, the newly mapped rate begins to transition to a full-risk rate, with annual increases to newly
mapped policy premiums calculated using a multiplier that varies by the year of the map
change.60 As of September 2016, about 3.9% of NFIP policies receive a newly mapped subsidy.61
Grandfathering
Using the authority to set rate classes for the NFIP and to offer lower than actuarial premiums,62
FEMA allows owners of properties that were built in compliance with the FIRM in effect at the
time of construction to maintain their old flood insurance rate class if their property is remapped
into a new flood rate class. This practice is colloquially referred to as “grandfathering,”
“administrative grandfathering,” or the “grandfather rule” and is separate and distinct from the
pre-FIRM subsidy.63 FEMA does not consider the practice of grandfathering to be a subsidy for
the NFIP, per se, because the discount provided to an individual policyholder is cross-subsidized
by other policyholders in the NFIP. Thus, while grandfathering does intentionally allow
policyholders to pay premiums that are less than their known actuarial rate, the discount is offset
by others in the same rate class as the grandfathered policyholder.
Congress implicitly eliminated the practice of offering grandfathering to policyholders after new
maps were issued in BW-12, but then subsequently reinstated the practice in HFIAA, which
repealed the BW-12 provision that terminated grandfathering and allowed grandfathered status to
be passed on to the new owners when a property is sold.64 FEMA does not have a definitive
estimate on the number of properties that have a grandfathered rate in the NFIP, though data are
56 Section 6 of P.L. 113-89, 128 Stat.1028, as codified at 42 U.S.C. §4015(i).
57 A Special Flood Hazard Area (SFHA) is defined by FEMA as an area with a 1% or greater risk of flooding every
year.
58 For properties which are excluded from, or ineligible for, the newly mapped subsidy, see FEMA, Flood Insurance
Manual, Newly Mapped Section, Revised April 2018, pp. NM 1 and NM 2, at https://www.fema.gov/media-librarydata/1523307347793-4cf9726b2eb04c3471a3e9d37a58fa6a/10_newly_mapped_508_apr2018.pdf.
59 The FRP for a newly mapped property is $50, where the FPF for PRP is $25. See FEMA, Flood Insurance Manual,
Rating Section, Revised April 2018, p. RATE 16, at https://www.fema.gov/media-library-data/15233072871004cf9726b2eb04c3471a3e9d37a58fa6a/05_rating_508_apr2018.pdf.
60 FEMA, Attachment A: Summary of the NFIP Program Changes Effective April 1, 2018, at https://nfip-iservice.com/
Stakeholder/pdf/bulletin/ATTACHMENT%20A%20%20Summary%20of%20the%20NFIP%20April%202018%20and%20January%202019%20Program%20Changes%20f
inal.pdf.
61 Email correspondence from FEMA Congressional Affairs staff, March 3, 2017.
62 42 U.S.C. §4013(a).
63 For a full description, see FEMA, NFIP Grandfathering Rules for Agents, March 2015, at https://www.fema.gov/
media-library-data/1488482596393-dcc52e6c120c9327dcd75f1c08e802e4/GrandfatheringForAgents_03_2016.pdf.
64 Section 100207 of P.L. 112-141 amended the law to require that when a property has a revised or updated flood rate
class with a new flood map, the “risk premium rate charged for flood insurance on such property shall be adjusted to
accurately reflect the current risk of flood to such property” (126 Stat. 919), thus eliminating the ability to grandfather.
This provision was struck by Section 4 of P.L. 113-89, 128 Stat. 1022.
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being collected to fulfill a separate mandate of HFIAA.65 Unofficial estimates suggest that at least
10%-20% of properties are grandfathered, and these figures may increase with time as newer
maps are introduced in high population areas.66
Summary
The current categories of properties which pay less than the full risk-based rate are determined by
the date when the structure was built relative to the date of adoption of the FIRM, rather than the
flood risk or the ability of the policyholder to pay. Other ways of reforming the premium structure
to reflect full risk-based rates could address a number of the policy goals identified by GAO. For
example, actuarially sound rates could place the NFIP on a more financially sustainable path,
risk-based price signals could give policyholders a clearer understanding of their true flood risk,
and a reformed rate structure could encourage more private insurers to enter the market.
However, charging actuarially sound premiums may mean that insurance for some properties is
considered unaffordable, or that premiums increase at a rate which may be considered to be
politically unacceptable.
Provisions Related to Premiums and Surcharges in H.R. 2874
Section 102 would phase out the pre-FIRM subsidy for primary residences at a
rate of 6.5%-15% (compared to the current rate of 5%-18%), except that in the
first year after enactment, the minimum rate increase would be 5%; in the second
year after enactment, the minimum rate increase would be 5.5%; and in the third
year of enactment, the minimum rate increase would be 6%. The phaseout of the
pre-FIRM subsidy for other categories of properties (non-primary residences,
non-residential properties, severe repetitive loss properties, properties with
substantial cumulative damage, and properties with substantial damage or
improvement after July 6, 2012) would remain at 25%. This section would make
it possible, but not certain, for FEMA to raise premiums more rapidly than under
current legislation by increasing the minimum rate at which the pre-FIRM
subsidy could be removed for primary residences.
Section 105 would require FEMA, not later than two years after enactment, to
calculate premium rates based on a consideration of the differences in flood risk
resulting from coastal flood hazards and riverine, or inland flood hazards. Six
months prior to the effective date of risk premium rates, FEMA would be
required to publish in the Federal Register an explanation of the bases for, and
methodology used to determine, the chargeable premium rates to be effective for
flood insurance coverage under this title. Certain aspects of coastal flood risk are
already incorporated into NFIP rates, notably risk from wave action (known as
the “V” zone); how this may change with this possible new requirement is not yet
known.
65 Section 28 of HFIAA (P.L. 113-89, 128 Stat. 1033) requires that the Administrator “clearly communicate full flood
risk determinations to individual property owners regardless of whether their premium rates are full actuarial rates.” To
fulfill this mandate, FEMA must identify all properties that are grandfathered or pre-FIRM and notify those
policyholders what their property’s true flood risk is versus the risk they are currently paying for with a subsidy/crosssubsidy.
66 Telephone correspondence with FEMA staff, January 20, 2016. See also National Academies of Sciences,
Affordability of National Flood Insurance Program Premiums: Part 1, 2015, p. 74, http://www.nap.edu/catalog/21709/
affordability-of-national-flood-insurance-program-premiums-report-1.
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Section 111 would require FEMA to conduct a study to evaluate insurance
industry best practice and develop a feasible implementation plan and projected
timeline for including the replacement cost value of a structure in setting NFIP
premium rates. FEMA would be required to begin gradually phasing in the use of
replacement cost value in setting NFIP premium rates 12 months after enactment,
with replacement cost value to be used in setting all NFIP premium rates by
December 31, 2020. If this provision were enacted, it is anticipated that those
structures with higher replacement costs than current local or national averages
would begin paying more for their NFIP coverage than those structures that are
below the average, which would pay less. How much more, or how much less, is
uncertain.
Section 112 would cap the premiums for 1-4 unit residential properties with
elevation data meeting FEMA’s standards at $10,000 per year, adjusted for
inflation every five years. There is currently no statutory cap on premiums. This
cap could affect approximately 800 properties, or 0.02% of NIFP policies,67
though that figure is subject to considerable change (likely increasing) as
premium rates change in the future.
Section 301 would require FEMA, not later than three years from enactment, to
calculate premium rates based on both the risk identified by the applicable
FIRMs and by other risk assessment data and tools, including risk assessment
models and scores from appropriate sources. This provision would expand on the
existing method of determining rates (the FIRM) and allow alternatives, such as a
risk score methodology (for example, a scale of 1 to 10 or 1 to 100, where the
premiums would increase with the numerical score). Until FEMA develops these
new risk assessment tools, it is not possible to say how this would affect
premiums.
Section 502 would increase the HFIAA surcharge from $25 to $40 for primary
residences and from $250 to $275 for non-residential properties and most nonprimary residences. However, the HFIAA surcharge for non-primary residences
which are eligible for a Preferred Risk Policy would drop from $250 to $125.
This provision would increase the amount that most policyholders pay for flood
insurance. FEMA does not include the HFIAA surcharge in their calculation of
premium rate increases,68 so this increase would not be affected by the cap set out
in Section 102.
Section 503 would require FEMA, beginning in FY2018, to place in the reserve
fund an amount equal to not less than 7.5% of the required reserve ratio. If in any
given year FEMA does not do so, for the following fiscal year the Administrator
would be required to increase the reserve fund assessment by at least one
percentage point over the rate of the annual assessment (i.e., from the current
15% to 16%), and to continue such increases until the fiscal year in which the
statutory reserve ratio is achieved. This provision would likely increase
premiums for all NFIP policyholders.69
67 Congressional Budget Office, Cost Estimate for H.R. 2868, National Flood Insurance Program Policyholder
Protection Act of 2017, at https://www.cbo.gov/publication/52881.
68 FEMA, Summary of the NFIP April 2018 and January 2019 Program Changes, September 27, 2017, at https://nfipiservice.com/Stakeholder/pdf/bulletin/w-17061.html.
69 For example, on March 31, 2018, FIMA had $446 million available in the reserve fund, significantly less than the
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Provisions Related to Premiums and Surcharges in Senate Bills
S. 1313, Section 207, would require FEMA to conduct a study to evaluate
insurance industry best practice and develop a feasible implementation plan and
projected timeline for including the replacement cost value of structures in
setting NFIP premium rates. FEMA would be required to begin gradually phasing
in the use of replacement cost value in setting NFIP premium rates 12 months
after enactment, with replacement cost value to be used in setting all NFIP
premium rates four years after enactment.
S. 1313, Section 209, would establish a baseline amount that tracks the Federal
National Mortgage Association (Fannie Mae) maximum loan limits for singlefamily dwellings.70 This section would set the contents coverage limits at 50% of
the baseline amount. The coverage limit for single-family dwellings would be set
at the baseline amount and the coverage limit for other residential and nonresidential properties at 200% of the baseline amount. As the Fannie Mae loan
limit increases, the NFIP building coverage limits would also increase.
S. 1368, Section 102, would prohibit FEMA from increasing the amount of
covered costs above 10% per year on any policyholder during the six-year period
beginning on the date of enactment. Covered costs include premiums, surcharges
(including the surcharge for Increased Cost of Compliance coverage71 and the
HFIAA surcharge), and the Federal Policy Fee. This would limit the rate of
increase of covered costs for all categories of policies, not just policies for
primary residences, and would be particularly significant for those policies where
the pre-FIRM subsidy is currently being phased out at 25% per year. This section
would also amend the basis on which premiums are calculated so that an average
historical loss year72 would exclude catastrophic loss years. This would probably
lower premiums for all policyholders.
S. 1368, Section 104, would raise the building coverage limits to $500,000 for
single-family dwellings and $1,500,000 for non-residential buildings.
S. 1571, Section 301, would require FEMA to conduct a study to evaluate
insurance industry best practices and develop a feasible implementation plan and
projected timeline for including the replacement cost value in setting NFIP
required reserve ratio of $959 million. Data provided in email correspondence from FEMA Congressional Affairs Staff,
April 20, 2018.
70 The Federal National Mortgage Association loan limits for conventional mortgages for 2018 are available at
https://www.fanniemae.com/singlefamily/loan-limits. For most locations, the single-family loan limit in 2018 is
$453,100; for high-cost areas, the single-family loan limit is $679,650.
71 See the “Increased Cost of Compliance (ICC) Coverage ” section of this report.
72 The average historical loss year is the minimum target amount that the NFIP needs to collect from all premiums to
cover at least average annual losses, as determined by historical data. FEMA uses this estimate to calculate the
premium that would be sufficient to pay for the average level of losses that occurred in past years and help set the rate
level for subsidized flood insurance policies. When the NFIP was originally established, the average historical loss year
did not include catastrophic loss years. BW-12 directed FEMA to review the basis on which it was setting NFIP rates,
with specific attention to ensuring that catastrophic loss years would be fully incorporated into the NFIP calculation of
average historical loss year. See GAO, Financial Challenges Underscore Need for Improved Oversight of Mitigation
Programs and Key Contracts, GAO-08-457, June 16, 2008, p. 19, http://www.crs.gov/reports/IN10835?source=
HPinsight; and National Research Council of the National Academies, Affordability of National Flood Insurance
Program Premiums: Report 1, 2015, p. 42, http://www.nap.edu/catalog/21709/affordability-of-national-floodinsurance-program-premiums-report-1.
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premium rates. FEMA would be required to submit a report not later than 18
months after enactment, and implement the recommendations one year after
submitting the report.
NFIP Borrowing from Treasury
The NFIP was not designed to retain funding to cover claims for truly extreme events; instead, the
statute allows the program to borrow money from the Treasury for such events.73 For most of the
NFIP’s history, the program has generally been able to cover its costs, borrowing relatively small
amounts from the U.S. Treasury to pay claims, and then repaying the loans with interest.74
However, Congress increased the level of NFIP borrowing to pay claims in the aftermath of the
2005 hurricane season (particularly Hurricanes Katrina, Rita and Wilma), increasing the
borrowing limit to $18.5 billion in 2005,75 and increasing the borrowing limit again in 2006 to
$20.775 billion.76 Following Hurricane Sandy, Congress increased the borrowing limit of the
NFIP to the current $30.425 billion.77 In January 2017, the NFIP borrowed $1.6 billion due to
losses in 2016 (the August 2016 Louisiana floods and Hurricane Matthew).78 On September 22,
2017, the NFIP borrowed the remaining $5.825 billion from the Treasury to cover claims from
Hurricane Harvey, reaching the NFIP’s authorized borrowing limit of $30.425 billion.79 On
October 26, 2017, Congress cancelled $16 billion of NFIP debt, making it possible for the
program to pay claims for Hurricanes Harvey, Irma, and Maria.80 FEMA borrowed another $6.1
billion on November 9, 2017, to fund estimated 2017 losses, including those incurred by
Hurricanes Harvey, Irma, and Maria and anticipated programmatic activities, bringing the debt up
to $20.525 billion. The NFIP currently has $9.9 billion of remaining borrowing authority.81
If there were to be a lapse in authorization on or after November 30, 2018, and the borrowing
authority is reduced to $1 billion, FEMA would continue to adjust and pay claims as premium
dollars come into the National Flood Insurance Fund (NFIF)82 and reserve fund. If the funds
available to pay claims in the NFIF and the reserve fund were to be depleted, claims would have
to wait until sufficient premium dollars were received to pay them unless Congress were to
appropriate supplemental funds to the NFIP to pay claims or increase the borrowing limit. In the
event that Congress does not provide funding to cover unpaid claims, policyholders might avail
themselves of judicial remedies to recover these funds from the U.S. Treasury.83
The NFIP’s debt is conceptually owed by current and future participants in the NFIP, as the
insurance program itself owes the debt to the Treasury and pays for accruing interest on that debt
through the premium revenues of policyholders.84 Under its current authorization, the only means
73 42 U.S.C. §4106(a).
74 GAO, High-Risk Series 2017: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others,
GAO-17-317, February 2017, p. 619, http://www.gao.gov/products/GAO-17-317.
75 P.L. 109-106, §2, 119 Stat. 2228.
76 P.L. 109-208, §2, 120 Stat. 317.
77 P.L. 113-1, §1(a), 127 Stat. 3.
78 Email correspondence from FEMA Congressional Affairs Staff, January 17, 2017.
79 Email correspondence from FEMA Congressional Affairs Staff, September 22, 2017.
80 P.L. 115-72, Title III, §308.
81 Email correspondence from FEMA Congressional Affairs Staff, January 4, 2018.
82 42 U.S.C. §4017.
83 Email correspondence from FEMA Congressional Affairs staff, May 2, 2017.
84 For current details of the NFIP’s premium revenues and claims/loss data, see FEMA’s website for policy and claim
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the NFIP has to pay off the debt is through the accrual of premium revenues in excess of outgoing
claims, and from payments made out of the reserve fund. For example, since the NFIP borrowed
funds following the 2005 hurricane season, the NFIP has paid $2.82 billion in principal
repayments and $3.83 billion in interest to service the debt through the premiums collected on
insurance policies.85 In a recent report, GAO noted that charging current policyholders to pay for
debt incurred in past years is contrary to actuarial principles and insurers’ pricing practices;
according to actuarial principles, a premium rate is based on the risk of future losses and does not
include past costs.86 GAO also argued that this creates a potential inequality because
policyholders are charged not only for the flood losses that they are expected to incur, but also for
losses incurred by past policyholders.87
The cancellation of $16 billion of NFIP debt in October 2017 represents the first time that NFIP
debt has been cancelled, although Congress appropriated funds between 1980 and 1985 to repay
NFIP debt.88 Earlier in 2017, GAO had considered the option of eliminating FEMA’s debt to the
Treasury, suggesting that if the debt were eliminated, FEMA could reallocate funds used for debt
repayment for other purposes such as building a reserve fund and program operations, and
arguing that this would also be more equitable for current policyholders and consistent with
actuarial principles.89 Eliminating the entire NFIP debt would require Congress to cancel debt
outright, to appropriate funds for FEMA to repay the debt, or to change the law90 to eliminate the
requirement that FEMA repay the accumulated debt.
No projections of the NFIP debt have yet been made that take account of the cancellation of $16
billion of NFIP debt or the, as yet unknown, total claims of the 2017 hurricane season. As
required by law,91 FEMA submitted a report to Congress in 2013 on how the borrowed amount
from the U.S. Treasury could be repaid within a 10-year period. This report indicated that in most
realistic scenarios, the debt would not be paid off for at least 20 years, and that period could
increase considerably with future catastrophic incidents.92 FEMA estimated in March 2017 that
the NFIP’s $24.6 billion debt would require annual interest-only payments of nearly $400
million, noting that if interest rates were to rise, these payments would increase significantly and
FEMA might not be able to retire any of its debt, even in low loss years.93 In April 2017, FEMA
updated some of the assumptions in the October 2015 NFIP Semi-Annual Debt Repayment
Progress Report and estimated that at the end of 20 years, the NFIP’s net debt would increase by
a further $9.4 billion.94 Also in April 2017, the Congressional Budget Office (CBO) projected that
statistics at https://www.fema.gov/policy-claim-statistics-flood-insurance.
85 Update on the National Flood Insurance Program’s Borrowing Authority, Email correspondence from FEMA
Congressional Affairs Staff, November 20, 2017.
86 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 16, https://www.gao.gov/products/GAO-17-425.
87 Ibid.
88 Funds for “repayment under notes” were appropriated in P.L. 996-526, 94 Stat. 3053; P.L. 97-101, 95 Stat. 1425;
P.L. 97-272, 96 Stat. 1169; P.L. 98-45, 97 Stat. 228; P.L. 98-371, 98 Stat. 1224; and P.L. 99-160, 99 Stat. 918. These
appropriations cumulatively repaid $1,313,227,000.
89 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 16, https://www.gao.gov/products/GAO-17-425.
90 42 U.S.C. §4016.
91 See 42 U.S.C. §4016(d), as enacted by Section 100213(a) of P.L. 112-141 (BW-12).
92 See FEMA, Semi-Annual NFIP Debt Repayment Progress Report, October 2015, p. 9.
93 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 15, https://www.gao.gov/products/GAO-17-425.
94 Email correspondence from FEMA Congressional Affairs Staff, April 5, 2017. The revised assumptions used in
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the NFIP would have insufficient receipts to pay the expected claims and expenses over the 20182027 period and that FEMA would need to use about $1 billion of its borrowing authority to pay
those expected claims.95 Although the debt cancellation means that the 2017 hurricane season will
probably not require an increase in the borrowing limit, the NFIP will have a debt very similar to
the debt after the 2005 hurricane season. Since 2005, the program has devoted more resources to
interest payments than to repaying the debt, and it seems unlikely that this would be different in
the future without congressional action.
Provisions Related to NFIP Debt in Senate Bills
S. 1368, Section 301, would freeze interest accrual on the NFIP’s debt to the
Treasury for six years after enactment. This would make it possible for the NFIP
to spend saved amounts from foregone interest payments for a variety of other
purposes.
Affordability of Flood Insurance
Some stakeholders have expressed concern related to the perceived affordability of flood
insurance premiums and the balance between actuarial soundness and other goals of the NFIP. 96
Particularly following the increase in premiums associated with BW-12 and HFIAA, concerns
were raised that risk-based premiums could be unaffordable for some households. Section 100236
of BW-12 called for an affordability study by FEMA and also a study by the National Research
Council of the National Academy of Sciences (NRC) regarding participation in the NFIP and the
affordability of premiums. In HFIAA Section 9, Congress also required FEMA to develop a Draft
Affordability Framework “that proposes to address, via programmatic and regulatory changes, the
issues of affordability of flood insurance sold under the National Flood Insurance Program,
including issues identified in the affordability study….”97 FEMA published their Affordability
Framework on April 17, 2018.98
The NRC report was published in two parts.99 The first NRC report considered the many ways in
which to define affordability and identify which households need financial assistance with
premiums. They noted that there are no objective definitions of affordability for flood insurance,
nor is there an objective threshold that separates affordable premiums from unaffordable
premiums and thus defines affordability either for an individual property owner or renter, or for
any group of property owners or renters.100 They suggested that if affordability were to be
making this projection were (1) accounting for the significant flooding in FY2016, including Baton Rouge flooding but
excluding Hurricane Matthew; (2) revised premium increases for the final five years of the projection, resulting in
lower premium and reserve fund projections; and (3) changes in the projected numbers of policies-in-force.
95 Congressional Budget Office (CBO) Preliminary Results from CBO’s Analysis of the National Flood Insurance
Program, at https://www.cbo.gov/publication/52638. Note that this projection was before the 2017 hurricane season.
96 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, p. 2, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-programpremiums-report-1.
97 Section 9(a) of P.L. 113-89, 128 Stat. 1024.
98 FEMA, An Affordability Framework for the National Flood Insurance Program, 2018.
99 See National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-programpremiums-report-1; and National Research Council of the National Academies, Affordability of National Flood
Insurance Program Premiums: Report 2, 2016, http://www.nap.edu/catalog/21848/affordability-of-national-floodinsurance-program-premiums-report-2.
100 National Research Council of the National Academies, Affordability of National Flood Insurance Program
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addressed through some form of government assistance, a number of questions would need to be
answered by Congress or FEMA: (1) Who will receive assistance? (2) What assistance will be
provided? (3) How will assistance be provided? (4) How much assistance will be provided? (5)
Who will pay for the assistance? (6) How will assistance be administered?101
The NRC report suggested that eligibility for assistance could be based on (1) being costburdened by flood insurance, (2) the loss of pre-FIRM subsidies or grandfathered cross-subsidies,
(3) the requirement to purchase flood insurance, (4) housing tenure, (5) household income, (6)
mitigation, or (7) community characteristics.102 The first NRC report identified potential policy
measures that might reduce the burden of premium payments, or that might direct mitigation
assistance towards households that qualify for assistance, such as means-tested mitigation grants,
mitigation loans, means-tested vouchers, federal tax deductions and credits, disaster savings
account, expanding the variety of individual mitigation measures that reduce premiums,
encouraging the selection of higher premium deductibles, reducing NFIP administrative cost
loadings in premiums, eliminating the mandatory purchase requirement, or relying on the
Treasury to help pay claims in catastrophic loss years.103 The report concluded that policymakers
will need to decide whether they want to define cost burden with reference to income, housing
costs in relation to income, premium paid in relation to property value, or some other measure.104
GAO also considered the issue of affordability, suggesting that an affordability program that
addresses the goals of encouraging consumer participation and promoting resilience would
provide means-tested assistance through appropriations rather than through discounted premiums,
and prioritize it to mitigate risk. They argued that providing premium assistance through
appropriations rather than discounted premiums would address the policy goal of making the
fiscal exposure more transparent because any affordability discounts on premium rates would be
explicitly recognized in the budget each year.105 GAO suggested that linking subsidies to ability
to pay rather than the existing approach to subsidies would make premium assistance more
transparent and thus more open to oversight by Congress and the public. They also argued that
means-testing premium assistance would help ensure that only those who could not afford fullrisk rates would receive assistance, which could lower the number of policyholders receiving a
subsidy and thus increase the amount that the NFIP receives in premiums and reduce the
program’s federal fiscal exposure. GAO estimated that 47%-74% of policyholders could be
eligible for subsidy if income eligibility was set at 80% or 140% of area median income,
respectively.106 GAO also suggested that instead of premium assistance, it would be preferable to
address affordability by providing assistance for mitigation measures that would reduce the flood
risk of the property, thus enhancing resilience, and ultimately result in a lower premium rate.
Premiums: Report 1, 2015, p. 80, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insuranceprogram-premiums-report-1.
101 Ibid., pp. 83-84.
102 Ibid., pp. 85-90.
103 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, pp. 99-107, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insuranceprogram-premiums-report-1.
104 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 2, 2016, p. 10, http://www.nap.edu/catalog/21848/affordability-of-national-flood-insuranceprogram-premiums-report-2.
105 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 27, https://www.gao.gov/products/GAO-17-425.
106 GAO, National Flood Insurance Program: Options for Providing Affordability Assistance, GAO-16-190, February
10, 2016, p. 22, http://www.gao.gov/assets/680/675132.pdf.
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Reducing flood risk through mitigation could also reduce the need for federal disaster assistance,
further decreasing federal fiscal exposure.107
Another approach to making premiums affordable, at least for policyholders in the relevant
communities, would be to introduce policies to increase the number of communities participating
in the Community Rating System (CRS) or to encourage communities already participating in the
CRS to improve their rating. The CRS is a program offered by FEMA to incentivize the reduction
of flood and erosion risk, as well as the adoption of more effective measures to protect natural
and beneficial floodplain functions.108 FEMA awards points that increase a community’s “class”
rating in the CRS. Policyholders in the SFHA within a CRS community receive a 5%-45%
discount on their SFIP premiums, depending on their community’s rating. In order to participate
in the CRS program, a community must apply to FEMA and document its creditable
improvements through site visits and assessments. As of June 2017, FEMA estimated that only
5% of eligible NFIP communities participate in the CRS program. However, these communities
have a large number of flood policies, so more than 69% of all flood policies are written in CRSparticipating NFIP communities.109 Although the CRS discount reduces flood insurance
premiums for individual communities, the CRS discount is cross-subsidized into the NFIP
program, such that the discount for one community ends up being offset by increased premium
rates in all communities across the NFIP. For example, the average 11.4% discount for CRS
communities in April 2014 was cross-subsidized and shared across NFIP communities through a
cost (or load) increase of 13.4% to overall premiums.110
FEMA does not currently have the authority to implement an affordability program, nor does
FEMA’s current rate structure provide the funding required to support an affordability program.
If an affordability program were to be funded from NFIP funds, this would require either raising
flood insurance rates for NFIP policyholders or diverting resources from another existing use.
Alternatively, an affordability program could be funded fully or partially by congressional
appropriation.
Provisions Related to Affordability in H.R. 2874
Section 103 would authorize a state or a consortium of states to create a
voluntary flood insurance affordability program for owner-occupants of 1-4 unit
residences in communities participating in the NFIP. Eligibility would be
determined by the state, but the affordability program would not be available to a
household with income that exceeds the greater of (i) the amount equal to 150%
of the poverty level for each state, or (ii) the amount equal to 60% of the median
income of households residing in the state. Assistance could be only in the form
of either establishing a limit on the amount of chargeable risk premium paid or
limiting the rate of increase in the amount of chargeable premiums. The state
affordability program would be funded through a surcharge on each policy within
that state that is not eligible to participate in the affordability program. Because
this approach to affordability would be funded by other NFIP policyholders, it
would create a new cross-subsidy within the NFIP for any states that develop an
107 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 25, https://www.gao.gov/products/GAO-17-425.
108 42 U.S.C. §4022(b)(1).
109 See FEMA, Community Rating System Fact Sheet, June 2017, at https://www.fema.gov/media-library-data/
1507029324530-082938e6607d4d9eba4004890dbad39c/NFIP_CRS_Fact_Sheet_2017_508OK.pdf.
110 A more recent average Community Rating System premium discount is not available; however, according to FEMA
it changes very little from year to year. Email correspondence from FEMA Congressional Affairs staff, June 15, 2017.
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affordability program. Because the affordability assistance is limited to singlefamily owner-occupiers, this surcharge could potentially be levied on
policyholders with equally low, or lower incomes, who are renters with contentsonly policies, or owner-occupiers who live in multiunit buildings.
Provisions Related to Affordability in Senate Bills
S. 1313, Section 208, would provide affordability vouchers for owner-occupied
households with NFIP policies in SFHAs with income less than 165% of area
median income and for which the cost of flood insurance premiums, surcharges,
and fees would result in excess costs for that year. Excess costs are defined as
when the sum of the total amount of NFIP premiums, surcharges and fees plus
the annual housing expenses exceed 40% of the total household income for the
year. The voucher would offset excess costs and would be used towards payment
of flood insurance premiums, surcharges, and fees. Policyholders with household
incomes below 80% of the area median income would receive a voucher for
100% of the excess costs. Policyholders with household incomes of 81%-120%
of area median income would receive vouchers for 80% of excess costs, and
policyholders with household incomes of 121%-165% of area median income
would receive vouchers for 60% of excess costs. It is unclear how these vouchers
would be funded.
S. 1368, Section 103, would require FEMA to establish an Affordability
Assistance Fund which would be separate from other NFIP funds and available
without fiscal year limitation. This Affordability Assistance Fund would be
credited with the income from the HFIAA surcharge. Section 103 would require
FEMA to offer zero or low-interest loans to fund mitigation projects by
homeowners, and would also require FEMA to provide financial assistance in the
form of a voucher, grant, or premium credit to an eligible household, defined as
one where housing costs exceed 30% of the household’s adjusted gross income
for the year and the total assets owned by the household are not greater than $1
million. The voucher, grant or premium credit would provide an amount equal to
the lesser of the difference between either the annual housing expenses or 30% of
the annual adjusted gross income of the household and the costs of NFIP
premiums plus principal and interest payments for a loan provided under this
section.
Increasing Participation in the NFIP
A long-standing objective of the NFIP has been to increase purchases of flood insurance policies,
and this objective of widespread NFIP purchase was one motivation for keeping NFIP premiums
reasonable111 and for later introducing the requirement to purchase flood insurance as a condition
of receiving a federally backed mortgage for properties in a SFHA, commonly referred to as the
mandatory purchase requirement. Early in the program, the federal government found that
making insurance available, even at subsidized rates, did not provide sufficient incentive for
communities to join the NFIP or for individuals to purchase flood insurance. In response,
111See 82 Stat. 577 for text in the original statute (Section 1308(b)(2) of P.L. 90-448). This language remains in statute;
(see 42 U.S.C. §4015(b)(2)).
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Congress passed the Flood Disaster Protection Act of 1973,112 which required the purchase of
flood insurance and placed the responsibility for ensuring compliance on lending institutions.
This mandatory purchase requirement was later strengthened by the National Flood Insurance
Reform Act of 1994.113
In a community that participates or has participated in the NFIP, owners of properties in the
mapped SFHA are required to purchase flood insurance as a condition of receiving a federally
backed mortgage. By law and regulation, federal agencies, federally regulated lending
institutions, and government-sponsored enterprises (GSE)114 must require these property owners
to purchase flood insurance as a condition of any mortgage that these entities make, guarantee, or
purchase.115 However, there are no official statistics available from the federal mortgage
regulators responsible for compliance with the mandate, and no up-to-date data on national
compliance rates with the mandatory purchase requirement. A 2006 study commissioned by
FEMA found that compliance with this mandatory purchase requirement may be as low as 43% in
some areas of the country (the Midwest), and as high as 88% in others (the West).116 A more
recent study of flood insurance in New York City found that compliance with the mandatory
purchase requirement by properties in the SFHA with mortgages increased from 61% in 2012 to
73% in 2016.117 The escrowing of insurance premiums, which began in January 2016, may
increase compliance with the mandatory purchase requirement more widely, but no data are yet
available.
Both the GAO and the NFIP report to Congress on options for privatizing the NFIP118 suggested
that the mandatory purchase requirement could potentially be expanded to more (or all) mortgage
loans made by federally regulated lending institutions for properties in communities participating
in the NFIP. This would increase the consumer participation rate in the NFIP and potentially
balance the NFIP portfolio with an increased number of lower risk properties.119 According to
GAO, some private insurers have indicated that a federal mandate could help achieve the level of
consumer participation necessary to make the private sector comfortable with providing flood
insurance coverage by increasing the number of policyholders, which would allow private
insurers to diversify and manage the risk of their flood insurance portfolio and address concerns
112 P.L. 93-234, 87 Stat. 985.
113 P.L. 103-325, 108 Stat. 2257.
114 Government-Sponsored Enterprises (GSEs) are private companies with congressional charters. Examples of GSEs
providing mortgages which would be affected by the mandatory purchase requirement include the Federal Home Loan
Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).
115 42 U.S.C. §4012a.
116 Lloyd Dixon, Noreen Clancy, and Seth A. Seabury, et al., The National Flood Insurance Program’s Market
Penetration Rate: Estimates and Policy Implications, RAND Corporation, Prepared as part of the Evaluation of the
National Flood Insurance Program, February 2006, p. 23, https://www.fema.gov/media-library-data/20130726-160220490-2804/nfip_eval_market_penetration_rate.pdf.
117 Lloyd Dixon, Noreen Clancy, and Benjamin M. Miller, et al., The Cost and Affordability of Flood Insurance in New
York City: Economic Impacts of Rising Premiums and Policy Options for One- to Four- Family Homes, Rand
Corporation, RAND RR1776, Santa Monica, CA, April 2017, pp. 15-18, https://www.rand.org/pubs/research_reports/
RR1776.html.
118 National Flood Insurance Program, Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, Appendix C: Flood Insurance Risk Study: Options for Privatizing the NFIP, August 13, 2015, p.
86, https://www.floods.org/ace-files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Report.pdf.
119 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 29 and p. 33, https://www.gao.gov/products/GAO-17-425.
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about adverse selection.120 The Association of State Floodplain Managers also suggested that all
properties within the SFHA should be required to have flood insurance, not just those with
federally backed mortgages.121
Figure 1. Residential Penetration Rates of NFIP Flood Insurance in Texas
Counties with FEMA Individual Assistance Declarations for Hurricane Harvey (DR-4332)
Source: Data provided by FEMA Congressional Affairs staff, November 6, 2017.
Notes: Left: county-wide penetration rate; right: penetration rate for structures in SFHA.
The flooding caused by the 2017 hurricanes highlighted the issue of low penetration rates122 of
flood insurance. In the counties in Texas with a FEMA Individual Assistance declaration123 for
Hurricane Harvey, the average penetration rate for all 41 counties was 10%, with a 21%
penetration rate for structures within the SFHA in those counties. The counties with the highest
penetration rate were on the coast (see Figure 1): Aransas County (72% penetration in SFHA,
43% penetration county-wide), Nueces County (70% in SFHA, 21% county-wide), and Galveston
County (64% in SFHA, 47% county-wide). In the counties in Florida with a FEMA Individual
Assistance declaration124 for Hurricane Irma, the average penetration rate for all 48 counties was
120 GAO, Flood Insurance: Strategies for Increasing Private Sector Involvement, GAO-47-127, January 2014, p. 23,
https://www.gao.gov/products/GAO-14-127.
121 Association of State Floodplain Managers, Inc., Rethinking the NFIP, ASFPM Comments on NFIP Reform, January
11, 2011, p. 5, http://www.floods.org/ace-files/documentlibrary/National_Policy/
Rethinking_the_NFIP_Comments_from_ASFPM_1-11-11.pdf.
122 FEMA describes NFIP penetration rates as the proportion of all properties with NFIP flood insurance. See, for
example, U.S. Government Accountability Office, Flood Insurance, GAO-14-297R, April 9, 2014, p. 6,
https://www.gao.gov/assets/670/662438.pdf.
123 Texas Hurricane Harvey DR-4332, https://www.fema.gov/disaster/4332.
124 Florida Hurricane Irma DR-4337, https://www.fema.gov/disaster/4337.
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12%, with a 31% penetration rate for structures within the SFHA in those counties. The counties
with the highest penetration rate (see Figure 2) were St. Johns County (73% in SFHA, 35%
county-wide), Flagler County (72% in SFHA, 18% county-wide), Nassau County (62% in SFHA,
25% county-wide), and Palm Beach County (62% in SFHA, 22% county-wide). NFIP penetration
rates were extremely low in Puerto Rico, with only 4,436 NFIP residential policies at the time
Hurricane Maria hit, for an average penetration rate of 0.23%, and in the Virgin Islands, with only
1,412 NFIP policies, for an average penetration rate of 2.5%.125
Figure 2. Residential Penetration Rates of NFIP Flood Insurance in Florida
Counties with FEMA Individual Assistance Declarations for Hurricane Irma (DR-4337)
Source: Data for all figures provided by FEMA Congressional Affairs staff, November 6, 2017.
Notes: Left: county-wide penetration rate; right: penetration rate for structures in SFHA.
NFIP policies are not distributed evenly around the country; about 37% of the policies are in
Florida, with 11% in Texas and 9% in Louisiana, followed by California with 5% and New Jersey
with 4%. These five states account for approximately 66% of all of the policies in the NFIP.126
NFIP participation rates are higher in coastal locations than in inland locations, and are highest in
the most risky areas due to mandatory purchase requirements.127 The NFIP could potentially be
financially improved with a more geographically diverse policy base and, in particular, through
finding ways to increase coverage in areas perceived to be at lower risk of flooding than those in
the SFHA.
125 All of the information in this paragraph is Congressional Research Service analysis of data provided by FEMA
Congressional Affairs staff, November 3, 2017. Figures were not provided for the Virgin Islands, so the penetration
rate was calculated using census data for the number of housing units divided by the 1,412 policies in force (residential
and commercial) as of August 31, 2017.
126 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, pp. 86-87, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insuranceprogram-premiums-report-1.
127 Ibid.
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FEMA has identified the need to increase flood insurance coverage across the nation as a major
priority for the current reauthorization and beyond, and has set a goal of doubling flood insurance
coverage by 2023, through the increased sale of both NFIP and private policies.128 Closing the
insurance gap is one of the key strategic objectives of FEMA’s 2018-2022 strategic plan.129
Provisions Related to Increasing NFIP Participation in H.R. 2874
Section 507 would increase the civil penalties from $2,000 to $5,000 on federally
regulated lenders for failure to comply with enforcing the mandatory purchase
requirement. In addition, the federal entities for lending regulations, in
consultation with FEMA, would be required jointly to update and reissue the
guidelines on compliance with mandatory purchase.
Section 513 would require a report by GAO on the implementation and efficacy
of the mandatory purchase requirement within 18 months of enactment.
Provisions Related to Increasing NFIP Participation in Senate Bills
S. 1313, Section 102, would require FEMA to conduct a study in coordination
with the National Association of Insurance Commissioners to address how to
increase participation in flood insurance coverage through programmatic and
regulatory changes, and report to Congress no later than 18 months after
enactment. This study would be required to include but not be limited to options
to (1) expand coverage beyond the SFHA to areas of moderate flood risk; (2)
automatically enroll customers in flood insurance while providing customers the
opportunity to decline enrollment; and (3) create bundled flood insurance
coverage that diversifies risk across multiple peril insurance.
S. 1368, Section 410, would require FEMA to conduct a study and report to
Congress within one year of enactment on the percentages of properties with
federally backed mortgages located in SFHAs satisfy the mandatory purchase
requirement, and the percentage of properties with federally backed mortgages
located in the 500-year floodplain that would satisfy the mandatory purchase
requirement if the mandatory purchase requirement applied to such properties.
S. 1571, Section 303, would require the federal banking regulators to conduct an
annual study regarding the rate at which persons who are subject to the
mandatory purchase requirement are complying with that requirement. Section
303 would also require FEMA to conduct an annual study of participation rates
and financial assistance to individuals who live in areas outside SFHAs.
The Role of Private Insurance in U.S. Flood Coverage
One of the reasons that the NFIP was originally created was because private flood insurance was
widely unavailable in the United States.130 Generally, private companies could not profitably
128 Roy E. Wright, “Setting the Tone: Opening Story and Our Transformation Process,” Keynote Remarks: PCI
National Flood Conference 2017, Arlington, VA, May 1, 2017, p. 6, https://www.fema.gov/media-library-data/
1493727672905-9f2950b534607c3f9ef3e771d28a81e2/
PreparedRemarks_Wright_NationalFloodConference_May2017.pdf.
129 FEMA, 2018-2022 Strategic Plan, March 2018, p. 15, https://www.fema.gov/media-library/assets/documents/
160940.
130 For a more detailed discussion of private flood insurance, see CRS Report R45242, Private Flood Insurance and the
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provide flood coverage at a price that consumers could afford, primarily because of the
catastrophic nature of flooding and the difficulty of determining accurate rates.131 Until recently
the role of the private market in primary residential flood insurance has been relatively limited.
The main role of private insurance companies at the moment is in the operational aspect of the
NFIP. FEMA provides the overarching management and oversight of the NFIP, and retains the
actual financial risk of paying claims for the policy (i.e., underwrites the policy). However, the
bulk of the day-to-day operation of the NFIP, including the marketing, sale, writing, and claims
management of policies, is handled by private companies. The arrangement between the NFIP
and private industry is authorized by statute and guided by regulation.132
There are two different arrangements that FEMA has established with private industry. The first is
the Direct Servicing Agent (DSA), which operates as a private contractor on behalf of FEMA for
individuals seeking to purchase flood insurance policies directly from the NFIP.133 The DSA also
handles the policies of severe repetitive loss properties. The second arrangement is called the
Write-Your-Own (WYO) Program, where private insurance companies are paid to write and
service the policies themselves. Roughly 86% of NFIP policies are sold by the private insurance
companies participating in the WYO Program.134 Companies participating in the WYO program
are compensated through a variety of methods.135 Some have argued that the levels of WYO
compensation are too generous, while others have argued that reimbursement levels are
insufficient to cover all expenses associated with servicing flood policies under the procedures set
by FEMA.136 A GAO study found that FEMA does not systematically consider actual flood
expenses and profits when establishing WYO compensation, and has yet to compare WYO
companies’ actual expenses and compensation. Therefore, FEMA lacks the data to determine how
much profit WYO companies make and whether the compensation payments are appropriate.137
In addition to the WYO program, there is a small private flood insurance market which most
commonly provides commercial coverage, coverage above the NFIP maximums, or coverage in
the lender-placed market.138 In general, the private flood market tends to focus on high-value
properties, which command higher premiums and therefore the extra expense of flood
underwriting can be more readily justified.139 At the moment very few private insurers compete
National Flood Insurance Program, by (name redacted) and (name redacted)
.
131 GAO, Flood Insurance: Strategies for Increasing Private Sector Involvement, GAO-47-127, January 2014, p. 6,
https://www.gao.gov/products/GAO-14-127.
132 See primarily 42 U.S.C. §4081 and §4018, and 44 C.F.R. Part 62.
133 The current Direct Servicing Agent is a company called National Flood Services, https://www.nfipservices.com/.
134 Email correspondence from FEMA Congressional Affairs staff, July 18, 2016. A list of companies participating in
the WYO Program is available at https://www.fema.gov/wyo_company.
135 See CRS Report R44593, Introduction to the National Flood Insurance Program (NFIP), by (name redacted) and
(name redacted).
136 Stuart Mathewson, Patrick Causgrove, and Sara Frankowiak, et al., The National Flood Insurance Program: Past,
Present ... and Future?, American Academy of Actuaries, Flood Insurance Subcommittee, July 2011, p. 13,
https://www.actuary.org/pdf/casualty/AcademyFloodInsurance_Monograph_110715.pdf.
137 GAO, Flood Insurance: FEMA Needs to Address Data Quality and Consider Company Characteristics When
Revising Its Compensation Methodology, GAO-17-36, December 2016, p. 60, https://www.gao.gov/products/GAO-1736.
138 The lender-placed or forced-place market is where lenders can force-place flood insurance on properties that are out
of compliance with the mandatory purchase requirement.
139 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 32, http://www.floods.org/ace-files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Report.pdf.
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with the NFIP in the primary voluntary flood insurance market. Some suggest that this is partly
because the non-compete clause—the contractual restriction140 placed on WYO carriers against
offering standalone private flood products that compete with the NFIP—curtails the potential
involvement of the WYO companies.141 However, FEMA has announced proposed changes for
FY2019 in which they would remove restrictions on WYO companies choosing to offer private
flood insurance, while maintaining requirements that such private insurance lines remain entirely
separate from a WYO company’s NFIP insurance business.142 If implemented, this would
effectively remove the non-compete clause without need for legislation.
Barriers to Private Sector Involvement
Private insurer interest in providing flood coverage has increased in recent years. Advances in the
analytics and data used to quantify flood risk mean that a number of private insurance companies
and insurance industry organizations have expressed interest in private insurers offering primary
flood insurance in competition with the NFIP. Private insurance is seen by many as a way of
transferring flood risk from the federal government to the private sector.
A reformed NFIP rate structure could have the effect of encouraging more private insurers to
enter the primary flood market; FEMA’s subsidized rates are often seen as the primary barrier to
private sector involvement in flood insurance.143 Even without the subsidies mandated by law, the
NFIP’s definition of full-risk rates differs from that of private insurers. Whereas the NFIP’s fullrisk rates must incorporate expected losses and operating costs, a private insurer’s full-risk rates
must also incorporate a return on capital. As a result, even those NFIP policies which are
considered to be actuarially sound from the perspective of the NFIP may still be underpriced from
the perspective of private insurers.144
The rules on the acceptance of private insurance for the mandatory purchase requirement have
had a significant impact on the market potential for private insurers. In BW-12, Congress
explicitly allowed federal agencies to accept private flood insurance to fulfill the mandatory
purchase mortgage requirement as long as the private flood insurance “provides flood insurance
coverage which is at least as broad as the coverage” of the NFIP, among other conditions.145 The
implementation of this requirement has proved challenging, with the responsible federal agencies
issuing two separate Notices of Proposed Rulemaking (NPRM) addressing the issue in October
2013146 and November 2016.147 The crux of the implementation issue may be seen as answering
140 Details of the WYO company arrangements are available at https://www.fema.gov/media-library-data/
1504278934379-6bdf86cd243d53170e7ff8a2afc6770d/
FY2018_Financial_Assistance_Subsidy_Arrangement_Oct_2017.pdf.
141 GAO, Flood Insurance: Potential Barriers Cited to Increased Use of Private Insurance, GAO-16-611, July 14,
2016, p. 31, https://www.gao.gov/assets/680/678414.pdf.
142 FEMA, “National Flood Insurance Program (NFIP); Assistance to Private Sector Property Insurers, Notice of FY
2019 Arrangement,” 83(52) Federal Register 11772-11778, March 16, 2018.
143 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 34, https://www.gao.gov/products/GAO-17-425.
144 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 58, http://www.floods.org/ace-files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Report.pdf.
145 42 U.S.C §4012a(b).
146 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards, Proposed
Rule,” vol. 78, no. 201 Federal Register 65108-65144, October 30, 2013.
147 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit
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the question of who would judge whether specific policies met the “at least as broad as” standard
and what criteria would be used in making this judgment. The uncertainty about whether or not
private policies would meet this standard has been viewed as a barrier to private sector
participation in the flood insurance market, along with FEMA’s policy on continuous coverage.148
Continuous coverage is required for property owners to retain any subsidies or cross-subsidies in
their NFIP premium rates. A borrower may be reluctant to purchase private insurance if doing so
means they would lose their subsidy should they later decide to return to NFIP coverage.
Many insurers also view the lack of access to NFIP data on flood losses and claims as a barrier to
more private companies offering flood insurance. It is argued that increasing access to past NFIP
claims data would allow private insurance companies to better estimate future losses and price
flood insurance premiums, and ultimately to determine which properties they might be willing to
insure.149 However, FEMA’s view is that the agency would need to address privacy concerns in
order to provide property level information to insurers, because the Privacy Act of 1974150
prohibits FEMA from releasing policy and claims data which contains personally identifiable
information.
Potential Effects of Increased Private Sector Involvement on the NFIP
Private sector competition might increase the financial exposure and volatility of the NFIP, as
private markets will likely seek out policies that offer the greatest likelihood of profit. In the most
extreme case, the private market may “cherry-pick” (i.e., adversely select) the profitable, lowerrisk NFIP policies that are “overpriced” either due to cross-subsidization or imprecise flood
insurance rate structures.151 This could leave the NFIP with a higher density of actuarially
unsound policies that are being directly subsidized or benefiting from cross-subsidization.
Because the NFIP cannot refuse to write a policy, those properties that are considered
“undesirable” by private insurers are likely to remain in the NFIP portfolio—private insurers will
not compete against the NFIP for policies that are inadequately priced from their perspective.152
Private insurers, as profit-seeking entities, are unlikely to independently price flood insurance
policies in a way that ensures affordable premiums as a purposeful goal, although some private
policies could be less expensive than NFIP policies. It is likely that the NFIP would be left with a
higher proportion of subsidized policies, which may become less viable in a competitive
market.153
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards—Private Flood
Insurance,” vol. 81, no. 215 Federal Register 78063-78080, November 7, 2016.
148 GAO, Flood Insurance: Potential Barriers Cited to Increased Use of Private Insurance, GAO-16-611, July 14,
2016, pp. 26-29, https://www.gao.gov/assets/680/678414.pdf.
149 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program:
Challenges and Solutions, April 2017, p. 60, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
150 P.L. 93-579, 5 U.S.C. §552a, as amended.
151 David Altmaier, Andy Case, and Mike Chaney, et al., Flood Risk and Insurance, National Association of Insurance
Commissioners and the Center for Insurance Policy and Research, CIPR Study Series 2017-1, April 2017, p. 47,
http://www.naic.org/documents/cipr_study_1704_flood_risk.pdf.
152 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 85, http://www.floods.org/ace-files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Report.pdf.
153 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program:
Challenges and Solutions, April 2017, p. 66, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
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Any significant increase in private insurer writing that “depopulates” the NFIP may undermine
the NFIP’s ability to generate revenue, reducing the amount of borrowing that can be repaid or
extending the time required to repay the debt. As the number of NFIP policies decreases, it may
become increasingly difficult for the remaining NFIP policyholders to subsidize policies and
repay NFIP debt. In the long term the program could be left as a residual market for subsidized or
high-risk properties. While this may be a valid policy choice, a likely consequence is that the
NFIP as a residual market would not be financially self-sustaining and would require support
from the federal government in some form.154
If the number of NFIP policyholders were to decrease significantly, it might also be difficult to
support the NFIP’s non-insurance functions of reducing flood risk through floodplain
management and mapping. Enforcement of flood mitigation standards could be more challenging
within a private flood insurance system, as the current system makes the availability of NFIP
insurance in a community contingent on the implementation of floodplain management standards.
However, government investment in mitigation could increase private market participation by
reducing the flood exposure of high risk properties and thereby increasing the number of
properties that private insurers would be willing to cover.155 The Association of State Floodplain
Managers (ASFPM) has expressed concerns that the widespread availability of private flood
insurance could lead some communities to drop out of the NFIP and rescind some of the
floodplain management standards and codes they had adopted, leading to more at-risk
development in flood hazard areas.156 ASFPM suggested that this issue could be addressed by
allowing private policies to meet the mandatory purchase requirement only if they were sold in
participating NFIP communities.157
Reinsurance
In HFIAA, Congress revised the authority of FEMA to secure reinsurance for the NFIP from the
private reinsurance and capital markets.158 In January 2017, FEMA purchased $1.042 billion of
insurance, to cover the period from January 1, 2017, to January 1, 2018, for a reinsurance
premium of $150 million. Under this agreement, the reinsurance covers 26% of losses between $4
billion and $8 billion arising from a single flooding event.159 Although it is too early to estimate
the total claims, FEMA has so far paid over $8.6 billion in claims for Hurricane Harvey,
triggering the 2017 reinsurance.160 In January 2018, FEMA purchased $1.46 billion of insurance
to cover the period from January 1, 2018, to January 1, 2019, for a reinsurance premium of $235
million. The agreement is structured to cover losses above $4 billion for a single flooding event,
covering 18.6% of losses between $4 billion and $6 billion, and 54.3% of losses between $6
154 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program:
Challenges and Solutions, April 2017, p. 68, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
155 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 108, http://www.floods.org/ace-files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Report.pdf.
156 Association of State Floodplain Managers, ASFPM’s Comments on Loans in Areas Having Special Flood Hazards Private Flood Insurance Joint Notice of Proposed Rulemaking, January 6, 2017, pp. 1-4, http://www.floods.org/aceimages/PrivateFloodIns_OCC_Jan2017.pdf.
157 Ibid.
158 See §10 of P.L. 113-89, 128 Stat. 1025, as codified at 42 U.S.C. §4081(e).
159 See FEMA, National Flood Insurance Program’s Reinsurance Program for 2017, at https://www.fema.gov/nfipreinsurance-program.
160 Email correspondence from FEMA Congressional Affairs staff, April 20, 2018.
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billion and $8 billion.161 In April 2018, FEMA announced that it would seek to transfer additional
NFIP risk to private markets through a reinsurance procurement in which the reinsurer acts as a
transformer to transfer NFIP-insured flood risk through the issuance of a catastrophe bond, to be
effective for a term of “likely” three years.162
The purchase of private market reinsurance reduces the likelihood of FEMA needing to borrow
from the Treasury to pay claims. In addition, as GAO noted, reinsurance could be beneficial
because it allows FEMA to recognize some of its flood risk and the associated risk up front
through the premiums it pays to the reinsurers rather than after the fact borrowing from Treasury.
From a risk management perspective, using reinsurance to cover losses in only the more extreme
years could help the government to manage and reduce the volatility of its losses over time.
However, because reinsurers understandably charge FEMA premiums to compensate for the risk
they assume, the primary benefit of reinsurance is to transfer and manage risk rather than to
reduce the NFIP’s long-term fiscal exposure.163 For example, a reinsurance scenario which would
provide the NFIP with $16.8 billion coverage (sufficient for Katrina-level losses) could cost an
estimated $2.2 billion per year.164 However, the NFIP’s finances do not offer room for
expenditure of this amount on reinsurance, as the current premium income is only about $3.5
billion per year, and most of that is required to pay claims.
Provisions Related to Private Insurance in H.R. 2874
Section 201 would revise the definition of private flood insurance previously
defined in BW-12. This section would strike existing statutory language
describing how private flood insurance must provide coverage “as broad as the
coverage” provided by the NFIP. Instead, the definition would rely on whether
the insurance policy and insurance company were in compliance in the individual
state (as defined to include certain territories and the District of Columbia).
Further, “private flood insurance” would be specifically defined as including
surplus lines insurance.165 Though the majority of regulation of private flood
insurance would then rest with individual states, federal regulators166 would be
required to develop and implement requirements relating to the financial strength
of private insurance companies from which such entities and agencies will accept
private insurance, provided that such requirements shall not affect or conflict
with any state law, regulation, or procedure concerning the regulation of the
161 Email correspondence from FEMA Congressional Affairs staff, January 5, 2018. For further details, see FEMA,
National Flood Insurance Program’s Reinsurance Program, at https://www.fema.gov/nfip-reinsurance-program.
162 FEMA, National Flood Insurance Program (NFIP) Reinsurance Program, at https://www.fema.gov/nfipreinsurance-program. For additional information on this, see CRS Insight IN10887, The National Flood Insurance
Program (NFIP), Reinsurance, and Catastrophe Bonds, by (name redacted) and (name redacted)
.
163 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 19, https://www.gao.gov/products/GAO-17-425.
164 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 171, http://www.floods.org/ace-files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Report.pdf.
165 Surplus lines (or non-admitted) insurance provides coverage for unusual risks typically unavailable in the traditional
insurance marketplace. For a further discussion of surplus lines insurance, see http://www.naic.org/cipr_topics/
archive_topic_nonadmitted_insurance_reinsurance.htm.
166 Specifically “the Director of the Federal Housing Finance Agency, in consultation with the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, the Secretary of Housing and Urban
Development, the Government National Mortgage Association, and the Secretary of Agriculture.”
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business of insurance. The dollar amount of coverage would still have to meet
federal statutory requirements and the GSEs may implement requirements
relating to the financial strength of such companies offering flood insurance. This
section would also specify that if a property owner purchases private flood
insurance and decides then to return to the NFIP, they would be considered to
have maintained continuous coverage. This section would allow private insurers
to offer policies that provide coverage that might differ significantly from NFIP
coverage, either by providing greater coverage or potentially providing reduced
coverage that could leave policyholders exposed after a flood.
Section 202 would apply the mandatory purchase requirement only to residential
improved real estate, thereby eliminating the requirement for other types of
properties (e.g., all commercial properties) to purchase flood insurance from
January 1, 2019. This would likely affect the policy base of the NFIP by reducing
the number of commercial properties covered.167 However, it is uncertain how
many would elect to forgo insurance coverage (public or private) entirely. To the
extent that commercial properties no longer choose to carry insurance (or are
allowed to do so by the conditions of their mortgages), there may be increased
uninsured damages to these properties from floods.
Section 203 would eliminate the non-compete requirement in the WYO
arrangement with FEMA that currently restricts WYO companies from selling
both NFIP and private flood insurance policies. This would allow the WYO
companies to offer their own insurance policies while also receiving
reimbursement for their participation in the WYO Program to administer the
NFIP policies. It is unknown what criteria WYO companies would use to
establish their own policies, and how they would choose to offer those policies
rather than NFIP policies to potential customers.
Section 204 would require FEMA to make publicly available all data, models,
assessments, analytical tools, and other information that is used to assess flood
risk or identify and establish flood elevations and premiums. This section would
also require FEMA to develop an open-source data system by which all
information required to be made publicly available may be accessed by the public
on an immediate basis by electronic means. Within 12 months after enactment,
FEMA would be required to establish and maintain a publicly searchable
database that provides information about each community participating in the
NFIP. This section provides that personally identifiable information would not be
made available; the information provided would be based on data that identifies
properties at the zip code or census block level. Ultimately, this data could be
used to better inform the participation of private insurers in offering private flood
insurance, as well as informing future flood mitigation efforts. However, the
availability of NFIP data could make it easier for private insurers to identify the
NFIP policies that are “overpriced” due to explicit cross-subsidization or
imprecise flood insurance rate structures, and adversely select these properties,
while the government would likely retain those policies that benefit from those
subsidies and imprecisions, potentially increasing the deficit of the NFIP.168
167 As of January 2018, there were 263,014 non-residential policies out of a total of 5,057,368 NFIP policies, or 5.2%.
See https://www.fema.gov/policies-force-occupancy-type.
168 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program:
Challenges and Solutions, April 2017, p. 4, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
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Section 506 would establish that the allowance paid to WYO companies would
not be greater than 27.9% of the chargeable premium for such coverage. It would
also require FEMA to reduce the cost of companies participating in the WYO
program.
Section 511 would require annual transfer of a portion of the risk of the NFIP to
the private reinsurance or capital markets to cover a FEMA-determined probable
maximum loss target that is expected to occur in the fiscal year, no later than 18
months after enactment.
Provisions Related to Private Insurance in Senate Bills
S. 1313, Section 101, would require annual transfer of a portion of the risk of the
NFIP to the private reinsurance or capital markets in an amount that is sufficient
to maintain the ability of the program to pay claims, and limit the exposure of the
NFIP to potential catastrophic losses from extreme events.
S. 1313, Section 401, would allow any state-approved private insurance to satisfy
the mandatory purchase requirement, and allow private flood insurance to count
as continuous coverage. This section would also change the amount of insurance
required169 for both private flood insurance policies and NFIP policies in order to
satisfy the mandatory purchase requirement. The required coverage would be the
lesser of 80% of the purchase price of the property, the maximum NFIP coverage
for that type of property, or the outstanding balance of the loan (for multiunit
structures only). This section would require FEMA, within two years of
enactment, to report on the extent to which the properties for which private flood
insurance is purchased tend to be at a lower risk than properties for which NFIP
policies are purchased (i.e., the extent of adverse selection), by detailing the risk
classifications of the private flood insurance policies. This data, while identifying
adverse selection based on risk profiles, might not identify if there has been
adverse selection based on subsidization.
S. 1313, Section 402, would give temporary authority for sale of private flood
insurance by WYO companies for certain properties during the first two years
after enactment (e.g., non-residential properties, severe repetitive loss properties,
business properties, or any property that has incurred flood-related damage in
which the cumulative amount of payments equaled or exceeded the fair market
value of the property).170 After two years and on completion of a study measuring
the risk classification underwritten by participating WYO companies, if the
FEMA Administrator determines that the provision of flood insurance to
properties in addition to those categories above will not adversely impact the
ability of the NFIP to maintain a diverse risk pool, the Administrator is
authorized to expand (or limit) the participation of WYO companies in the
broader flood insurance marketplace.
S. 1313, Section 403, would require FEMA to study the feasibility of selling or
licensing the use of historical structure-specific NFIP claims data to non-
169 42 U.S.C. §4012a(a) requires that a building or mobile home must be covered by flood insurance in an amount at
least equal to its development or project cost (less estimated land cost) or to the maximum limit of coverage made
available with respect to the particular type of property under the NFIP, whichever is less. This section also provides
that the amount of flood insurance need not exceed the outstanding principal balance of the loan and need not be
required beyond the term of the loan.
170 42 U.S.C. §4014(a)(2)(A)-(D).
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governmental entities, while reasonably protecting policyholder privacy, and
report within a year of enactment. This section would also authorize FEMA to
sell or license claims data as the Administrator determines is appropriate and in
the public interest, with the proceeds to be deposited in the National Flood
Insurance Fund.
S. 1313, Section 602, would require FEMA, not later than one year from
enactment, to create and maintain a publicly searchable database that includes the
aggregate number of claims filed each month, by state; the aggregate number of
claims paid in part or in full; and the aggregate number of claims denials
appealed, denials upheld on appeal, and denials overturned on appeal; without
making personally identifiable information available.
S. 1368, Section 302, would establish that the total amount of reimbursement
paid to WYO companies would not be greater than 22.46% of the chargeable
premium for such coverage.
S. 1368, Section 304, would require FEMA, within 12 months of enactment, to
develop a schedule to determine the actual costs of WYO companies, including
claims adjusters and engineering companies, and reimburse the WYO companies
only for the actual costs of the service or products.
S. 1571, Section 302, would specify that FEMA may consider any form of risk
transfer, including traditional reinsurance, catastrophe bonds, collateralized
reinsurance, resilience bonds, and other insurance-linked securities.
Properties with Multiple Losses
An area of controversy involves NFIP coverage of properties that have suffered multiple flood
losses, which are at greater risk than the average property insured by the NFIP. One concern is the
cost to the program; another is whether the NFIP should continue to insure properties that are
likely to have further losses.171 The NFIP currently uses more than one definition of repetitive
loss. The statutory definition of a repetitive loss structure172 is used for applications for Flood
Mitigation Assistance (FMA) grants. A slightly different definition is used for Increased Cost of
Compliance Coverage,173 and a third definition is used for internal tracking of insurance data and
171 See, for example, National Public Radio, National Flood Insurance Program Will Pay Out Billions for a Few
Properties, September 21, 2017, https://www.npr.org/2017/09/21/552708255/national-flood-insurance-program-willpay-out-billions-for-a-few-properties; National Resources Defense Council, Seeking Higher Ground: How to Break the
Cycle of Repeated Flooding with Climate-Smart Flood Insurance Reforms, Issue Brief 17-07-A, July 2017, pp. 1-14,
https://www.nrdc.org/sites/default/files/climate-smart-flood-insurance-ib.pdf; and “One House, 22 Floods: Repeated
Claims Drain Flood Insurance Program,” Wall Street Journal, September 15, 2017, https://www.wsj.com/articles/onehouse-22-floods-repeated-claims-drain-federal-insurance-program-1505467830.
172 The statutory definition of a repetitive loss structure is a structure covered by a contract for flood insurance that (a)
has incurred flood-related damage on two occasions, in which the cost of repair, on the average, equaled or exceeded
25% of the value of the structure at the time of each such flood event; and (b) at the time of the second incidence of
flood-related damage, the contract for flood insurance contains increased cost of compliance coverage. 42 U.S.C.
§4121(a)(7).
173 The definition of a repetitive loss structure used for Increased Cost of Compliance Coverage is a building covered
by a contract for flood insurance that has incurred flood-related damages on two occasions during a 10-year period
ending on the date of the event for which a second claim is made, in which the cost of repairing the flood damage, on
the average, equaled or exceeded 25% of the market value of the building at the time of such flood event. Federal
Emergency Management Agency, NFIP Increased Cost of Compliance Coverage Guidance for State and Local
Officials, FEMA 301, September 2003, pp. 1-6, https://www.fema.gov/pdf/plan/floodplain/fema301.pdf.
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also for the Community Rating System.174 The statutory definition of a severe repetitive loss
property is a property which has incurred four or more claim payments exceeding $5,000 each,
with a cumulative amount of such payments over $20,000; or at least two claims with a
cumulative total exceeding the value of the property.175 The definition of severe repetitive loss
property is consistent across program elements in the NFIP.
According to FEMA, repetitive loss (RL) and severe repetitive loss (SRL) properties account for
approximately $17 billion in claims, or approximately 30% of total claims over the history of the
program. As of January 31, 2017, there were 90,000 currently insured repetitive loss properties
and 11,000 currently insured severe repetitive loss properties. The currently insured repetitive loss
and severe repetitive loss properties (which represent about 2% of the overall policies in the
NFIP) have accounted for approximately $9 billion in claims, or approximately 16% of total
claims over the history of the program.176 A study of all of the residential NFIP claims filed
between January 1978 and December 2012 showed that the magnitude of claims for repetitive
loss structures as a percentage of building value was higher than non-repetitive loss properties by
5%-20%.177
Provisions Related to Multiple-Loss Properties in H.R. 2874
Section 402 would require certain NFIP communities with a history of flood loss
to identify where repeatedly flooded properties are located and assess the
continuing risks to such areas and develop a community-specific plan for
mitigating flood risks in these areas or face possible sanctions from FEMA.
Covered communities include those which participate in the NFIP within which
such properties are located: (i) 50 or more repetitive loss structures178 for each of
which, during any 10-year period, two or more claims for payment under flood
insurance coverage have been made with a cumulative amount exceeding $1,000;
(ii) five or more severe repetitive loss structures for which mitigation activities
have not been conducted; or (iii) a public facility or a private nonprofit facility
that has received assistance for repair, restoration, reconstruction, or replacement
under Section 406 of the Stafford Act (P.L. 93-288)179 in connection with more
than one flooding event in the most recent 10-year period. To assist communities
in the preparation of plans, FEMA would be required to provide covered
communities with appropriate data regarding property addresses and dates of
claims associated with insured properties within the community. Before
sanctioning a community for not fulfilling the requirements of this section,
FEMA would be required to issue notice of noncompliance before sanctions and
recommendations for actions to bring the community into compliance. FEMA
174 The internal insurance data definition used by FEMA is 2 or more losses of $1,000 or more over a rolling 10-year
period. Email correspondence from FEMA Congressional Affairs staff, April 7, 2017.
175 See 42 U.S.C. §4014(h) and 44 C.F.R. §79.2(h).
176 Email correspondence from FEMA Congressional Affairs staff, April 7, 2017. Almost every SRL property also fits
the insurance data definition of RL property (over 99%), so the 90,000 referenced as RL above includes the 11,000
referenced as SRL. In addition, some of the properties counted in the figures since the beginning of the NFIP have been
mitigated and others are not currently insured by the program.
177 Caroline Kousky and Erwann Michel-Kerjan, “Examining Flood Insurance Claims in the United States: Six Key
Findings,” Journal of Risk and Insurance, vol. 82 (2015), p. 18, http://opim.wharton.upenn.edu/risk/library/
J2015JORI_Flood-Insurance-Claims_CK-EMK.pdf.
178 Section 402 uses the statutory definition of repetitive loss structure.
179 42 U.S.C. §5172.
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would also be required to consider the resources available to the community
affected, including federal funding, the portion of the community that lies within
the SFHA, and other factors that make it difficult for the community to conduct
mitigation activities for existing flood-prone structures. FEMA would be required
to develop sanctions in future regulations. In making determinations regarding
financial assistance for mitigation, FEMA may consider the extent to which a
community has complied with this subsection. Although a community may
incorporate plans required under this section into flood mitigation plans180 or
hazard mitigation plans,181 which they may already be required to complete,
covered communities may feel that this section imposes significant additional
requirements.
Section 504 would define a new “multiple-loss property” category, which would
include three types of properties: (1) a revised definition of repetitive loss
property; (2) a severe repetitive loss property, with the same definition as the
existing statutory definition; and (3) a new category of extreme repetitive loss
property. The new definition of a repetitive loss property would be a structure
that has incurred flood damage for which two or more separate claims of any
amount have been made.182 The new definition of an extreme repetitive loss
property would be a structure which has incurred flood damage for which at least
two separate claims have been made with the cumulative amount of such claims
payments exceeding 150% of the maximum coverage available for the structure.
This section also defines the term “qualified claims payment” as a claims
payment of any amount made in connection with a flood event that occurred after
the date of enactment. Any multiple-loss properties which are not paying full
risk-based rates, and for which two qualified claims payment have been made,
would have premium rates increased at 10% per year until the full risk-based rate
is reached. After three qualified claims payment, rates would be increased at 15%
per year until the full risk-based rate is reached. Severe repetitive loss properties
and extreme repetitive loss properties would be subject to a minimum annual
deductible of $5,000. Flood insurance would not be available to an extreme
repetitive-loss property for which a claim payment for flood loss was made after
the date of enactment if the property owner refused an offer of mitigation. This
section would establish a broader definition of repetitive loss properties than the
current definition, which would bring more properties into the multiple-loss
categories. This section would also establish that only future claims would count
towards classifying a property as a multiple-loss property, and would eliminate
grandfathering for multiple-loss properties after two future claims.
Section 505 would eliminate any new or renewed NFIP coverage for multipleloss properties with excessive lifetime claims. The section defines such properties
as those where aggregate amounts in claims payments that have been made
after18 months from enactment exceed three times the amount of the replacement
value of the structure. This provision would represent the first time that the NFIP
would refuse to cover a property.
180 42 U.S.C. §4104c.
181 Section 322 of the Stafford Act. 42 U.S.C. §5165.
182 Note that this definition is considerably broader than any of the definitions currently in use by the NFIP.
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Provisions Related to Multiple-Loss Properties in Senate Bills
S. 1571, Section 101, contains provisions which are almost identical to those in
H.R. 2874, Section 402, for repeatedly flooded communities. The only difference
is that in the definition of a covered community, the criteria for repetitive loss
structures is only that 50 or more RL structures are located within the community,
without the additional criteria in H.R. 2874.
Increased Cost of Compliance (ICC) Coverage
The NFIP requires most policyholders183 to purchase ICC coverage, which is in effect a separate
insurance policy to offset the expense of complying with more rigorous building code standards
when local ordinances require them to do so. This Increased Cost of Compliance Coverage is
authorized in law, with rates for the coverage as well as how much can be paid out for claims, set
by FEMA.184 The amount that can be charged for ICC coverage is capped in law at $75 per year:
currently ICC premiums vary between $4 and $70.185 ICC policy premiums are separate from
standard flood insurance policy premiums. ICC coverage provides an amount up to $30,000 in
payments for certain eligible expenses.186 For example, ICC claims payments may be used toward
the costs of elevating, demolishing, relocating, or flood-proofing non-residential buildings, or any
combination of these actions. ICC coverage is in addition to the building coverage provided by
the standard flood policy. However, FEMA’s policy is that the payment on the building claim
plus the ICC claim cannot exceed the statutory maximum payment of $250,000 for residential
structures or $500,000 for non-residential structures.
Since the ICC was introduced in 1997, the program has received over $1.4 billion in premiums
and paid over $700 million in claims, with over $450 million in underwriting expenses and $50
million of claims handling expenses. However, between $100 million and $200 million has yet to
be paid on claims for older years. For the years on which FEMA has data, 2007-2015, the NFIP
has lost money on ICC on a cash flow basis. During that time period, on aggregate premiums of
$701 million, the NFIP had aggregate ICC underwriting losses of $171 million.187
According to ICC data, elevation is the most common form of mitigation. Approximately 61% of
all ICC claims closed with payment are single family residential claims involving compensation
for elevation of a structure to or above the Base Flood Elevation (BFE).188 Although the cost of
elevating a structure depends on the type of building and elevation requirement, the average cost
of elevating an existing property has been estimated at $33,239 to $91,732,189 and suggestions
have been made for years that the amount of ICC coverage should be raised.190
183 For example, ICC coverage is not required on condominium units and content-only policies.
184 42 U.S.C. §4011(b).
185 42 U.S.C. §4011(b).
186 See FEMA, Flood Insurance Manual, Rating Section, Revised April 2018, p. RATE 19, https://www.fema.gov/
media-library-data/1523307287100-4cf9726b2eb04c3471a3e9d37a58fa6a/05_rating_508_apr2018.pdf.
187 Email correspondence from FEMA Congressional Affairs staff, April 3, 2017.
188 FEMA, NFIP: Use of Increased Cost of Compliance Coverage, Fiscal Year 2009 Report to Congress, October 2009,
p. 6. Report provided by FEMA Congressional Affairs Staff. The Base Flood Elevation is the elevation of surface water
resulting from a flood that has a 1% chance of being equaled or exceeded in any given year.
189 Aerts, J.C.J.H., Botzen, W.J.W., and Moel, H. de, et al., “Cost Estimates for Flood Resilience and Protection
Strategies in New York City,” Annals of the New York Academy of Sciences, vol. 1294, no. 1 (August 2013), pp. 22-26.
190 See, for example, Association of State Floodplain Managers, Suggestions for Improving Increased Cost of
Compliance Coverage Under the National Flood Insurance Program, 2007, http://www.floods.org/PDF/
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The need to increase the amount of ICC coverage is one of the areas where H.R. 2874 and all of
the Senate bills agree; although the suggested amounts differ, all would raise the $30,000 limit.
Proposed Changes to Increased Cost of Compliance Coverage in H.R. 2874
Section 403 would authorize FEMA to supplement the existing ICC coverage
with the option of allowing policyholders to purchase additional ICC coverage up
to $60,000, for a surcharge priced accordingly by FEMA. This section would also
expand the availability of ICC coverage to include properties that FEMA or a
community identifies as being at high risk for future flood damages, and
properties located in a covered community (as defined in Section 402). This may
allow policyholders to claim ICC coverage in certain circumstances to mitigate
their property before a flood, rather than waiting until after they had been
flooded.
Proposed Changes to Increased Cost of Compliance Coverage in Senate Bills
S. 1313, Section 204, would increase ICC coverage to $75,000, and would
exempt the ICC payment amount from the maximum payout of an NFIP policy.
S. 1313, Section 404, would require a private flood insurance policy to provide
coverage that meets or exceeds the increased cost of compliance coverage
provided by a standard flood insurance policy under the NFIP.
S. 1368, Section 201, would increase ICC coverage to $100,000, and would
exempt ICC payment amounts from the maximum payout of an NFIP policy.
This section would make ICC coverage available to all NFIP policyholders, in
and out of SFHAs, if the community has established land use and control
measures for the area in which the property is located. This section would also
allow policyholders to use ICC coverage for any eligible project costs under the
FMA, HMGP,191 or Pre-Disaster Mitigation (PDM)192 programs for acquisition,
demolition, elevation, relocation, or small structural projects funded under those
programs.
S. 1571, Section 103, would increase primary ICC coverage to $60,000, with the
option of allowing policyholders to purchase additional ICC coverage up to
$100,000, for a surcharge priced accordingly by FEMA, and would exempt ICC
payment amounts from the maximum payout of an NFIP policy. This section
ASFPM_ICC_Positions_Recommendations_0807.pdf; FEMA, NFIP: Use of Increased Cost of Compliance Coverage,
Fiscal Year 2009 Report to Congress, October 2009, p. 32; and Lingle, B. and Kousky, C., Mitigation Post-Flood:
FEMA’s Increased Cost of Compliance (ICC) Coverage, http://www.rff.org/blog/2017/mitigation-post-flood-fema-sincreased-cost-compliance-icc-coverage.
191 The FEMA Hazard Mitigation Grant Program (HMGP) was established under Section 404 of the Robert T. Stafford
Disaster Assistance and Emergency Relief Act (42 U.S.C. §5170c). HMGP assistance is triggered by a major disaster
declaration by the President, with the goal of enacting mitigation measures to reduce the loss of life and property from
future disasters. For further information on the HMGP program, see https://www.fema.gov/hazard-mitigation-grantprogram and CRS Report R45017, Flood Resilience and Risk Reduction: Federal Assistance and Programs, by (name r
edacted) et al.
192 The FEMA Pre-Disaster Mitigation Program (PDM) was established under Section 203 of the Robert T. Stafford
Disaster Assistance and Emergency Relief Act (42 U.S.C. §5133). The goal of the PDM program is to reduce overall
risk to the population and structures from future hazard events, while also reducing reliance on federal funding in future
disasters. For further information on the PDM program, see https://www.fema.gov/pre-disaster-mitigation-grantprogram and CRS Report RL34537, FEMA’s Pre-Disaster Mitigation Program: Overview and Issues, by (name red
acted) .
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would make ICC coverage available to all NFIP policyholders, in and out of
SFHAs, if the community has established land use and control measures for the
area in which the property is located. This section would also allow policyholders
to use ICC coverage for any eligible project costs under the FMA, HMGP, or PreDisaster Mitigation (PDM) programs for acquisition, demolition, elevation,
relocation, or small structural projects funded under those programs.
Administrative Reforms
All of the bills include provisions related to administrative reforms of the NFIP, pilot projects,
and other studies, which are not described in detail in this report. Table 1 identifies the provisions
in the House and Senate bills related to administrative reform, divided into the following
categories: (1) payment and purchase requirements, (2) disclosure, information, claims, appeals,
administrative reform, and oversight; and (3) fraud and litigation. Only the disclosure
requirements will be discussed in this report.
Disclosure Requirements
Although some individual states require real estate transactions to be accompanied by a
disclosure of information pertaining to flood or other hazards, there is currently no flood risk
disclosure requirement under the NFIP. In fact, property owners may not have knowledge of the
entire past flood history of their property.
Provisions Related to Disclosure Requirements in H.R. 2874
Section 109 would require that no new flood insurance coverage may be
provided after September 30, 2022, unless an appropriate body (e.g., the local or
state government) has imposed, by statute or regulation, a duty on any seller or
lessor of improved real estate to provide a property flood hazard disclosure which
discloses any actual knowledge of the seller of prior physical damage caused by
flood to any building on the property, prior insurance claims for flood losses
(NFIP or private flood insurance), any previous notification regarding the
designation of the property as a multiple-loss property, and any federal legal
obligation to obtain and maintain flood insurance running with the property. This
disclosure may affect properties that have flood history during real estate
transactions by reducing the likelihood of the sale of the property or reducing its
value.
Provisions Related to Disclosure Requirements in Senate Bills
S. 1313, Section 203, would require a seller or lessor to provide a flood risk
information pamphlet produced by FEMA and disclose the available flood risk
profile of the property, including any past flood damage to the property or past
claims for flood losses (NFIP or private flood insurance); any information known
regarding designation of the property as a repetitive loss or severe repetitive loss
property and elevation certificate that is available to the seller or lessor; and any
requirement that the property be covered by flood insurance because the property
owner, or a previous owner, obtained any form of disaster assistance under the
Stafford Act. This section would also establish a 10-day period (or a period of a
different length of time if mutually agreed upon by the parties) during which the
purchaser or lessor may review options for managing or mitigating flood risk
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with respect to the property. This disclosure requirement may affect the
likelihood of the sale of properties with flood risk, but could also allow for the
possibility of mitigation by purchasers.
S. 1368, Section 423, would require landlords to disclose to tenants the flood
zone of the property, whether the property is covered by flood insurance, and the
availability of contents coverage under the NFIP. This could encourage a higher
take-up of contents coverage by renters.
S. 1571, Section 105, would require that no new flood insurance coverage may
be provided after September 30, 2022, unless the relevant public body has
imposed, by statute or regulation, a duty on any seller of improved real estate to
provide a property flood hazard disclosure which discloses any actual knowledge
of the seller of prior physical damage caused by flood to any building on the
property, prior insurance claims for flood losses (NFIP or private flood
insurance), any previous notification regarding the designation of the property as
a multiple-loss property, and any federal legal obligation to obtain and maintain
flood insurance running with the property. The same requirements would apply to
lessors of a rental property with a lease of 30 days or longer.
Non-Insurance Functions of the NFIP
In the debate about the future of the NFIP, the fact that flood insurance is only one of the
functions of the NFIP’s key responsibilities is sometimes overlooked. The NFIP has always been
more than just an insurance program. In addition to providing flood insurance, the program
identifies and maps flood hazards, sets minimum floodplain management standards, and offers
grants and incentive programs for household- and community-level investments in flood risk
reduction. The main non-insurance policy goal of the NFIP is to mitigate and reduce the nation’s
comprehensive flood risk193 through the development and implementation of floodplain
management standards.
Floodplain Mapping
FEMA develops, in coordination with participating communities, flood maps called Flood
Insurance Rate Maps (FIRMs) that depict the community’s floodplain and flood risk zones.
FIRMs provide the basis for setting insurance rates and identifying properties whose owners are
required to purchase flood insurance. The FIRMs also provide the basis for establishing
floodplain management standards that communities must adopt and enforce as part of their
participation in the NFIP. Flood maps adopted across the country vary considerably in age and in
quality, and there is no consistent, definitive timetable for when a particular community will have
its maps revised and updated. By law, once every five years, FEMA is required to assess the need
to revise and update all floodplain areas and flood-risk zones defined, delineated, or established
by the mapping program, based on an analysis of all natural hazards affecting flood risks.194 This
requirement does not dictate, however, that the FIRMs actually be updated once every five years.
Generally, flood maps may require updating when there have been significant new building
developments in or near the flood zone, changes to flood protection systems (e.g., levees, sea
193 In the context of this report, comprehensive flood risk means that the risk includes both financial risk (i.e., physical
damage to property), but also the risk to human life.
194 42 U.S.C. §4101(e).
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walls, sand dunes), or environmental changes in the community. The FEMA mapping process,
and some NFIP flood maps, have been criticized for being out of date, using poor quality data or
methods, or not taking account of changed conditions.195 In addition, the procedure to update
maps is time consuming, in large part due to the lengthy statutory consultation and appeals
process.196
In BW-12, Congress reestablished and reauthorized a body called the Technical Mapping
Advisory Council (TMAC).197 The TMAC is a federal advisory committee established to review
and make recommendations to FEMA on matters related to the national flood mapping program.
The TMAC is broadly authorized to review and recommend improvements to how FEMA
produces and disseminates flood hazard, flood risk, and flood map information.198 The TMAC is
required to submit an annual report to the FEMA Administrator summarizing its activities, its
evaluation of FIRMs and FEMA’s mapping activities, and its recommendations for improving
elements of the mapping program.199 Within a year of passage of BW-12, the TMAC was also
required to submit to the FEMA Administrator a one-time report with recommendations on how
to ensure that FIRMs incorporate the best available climate science to assess flood risks and
ensure that FEMA uses the best available methodology to consider the impact of sea level rise
and future development on flood risk.200 This report, the Future Conditions report, was submitted
in final form in February 2016.201 FEMA is legally required to “incorporate any future risk
assessment” by the TMAC in the Future Conditions report into any revision or update of the
NFIP’s FIRMs.202 Further, among the information FEMA is required to include in the updating of
FIRMs, is “any other relevant information as may be recommended by the [TMAC].”203 Statute
does not provide guidance on how or when the Administrator should act on the TMAC
recommendations. However, on an annual basis, BW-12 required FEMA to report to the
authorizing committees of jurisdiction in Congress204 and the Office of Management and Budget
195 DHS Office of Inspector General, FEMA Needs to Improve Management of Its Flood Mapping Programs, OIG-17-
110, Washington, DC, September 27, 2017, pp. 3-13, https://www.oig.dhs.gov/sites/default/files/assets/2017/OIG-17110-Sep17.pdf.
196 There are statutory guidelines for how FEMA is allowed to develop new FIRMs for a community. These guidelines
require, for example, FEMA to conduct extensive communication and outreach efforts with the community during the
mapping process and include various minimum waiting periods after intermediary steps are taken in the process.
Communities are asked to submit pertinent data concerning their flood hazards, flooding experience, mitigation plans
to avoid potential flood hazards, and estimates of historical and prospective economic impacts flooding has had on the
community. There are also legal requirements allowing communities and individuals to appeal during the process of
updating FIRMs. See 42 U.S.C. §4101b(d)(1), 42 U.S.C. §4104, 44 C.F.R. §66.1, 42 U.S.C. §4104(c)-(g), and 42
U.S.C. §4104-1.
197 Section 100215, Title II of P.L. 112-141, 126 Stat. 924, as codified at 42 U.S.C. §4101a. Congress originally
authorized the creation of the TMAC in 1994 (see Section 576 of P.L. 103-325, 108 Stat. 2280). However, in that
originating statute, the TMAC was required to terminate “5 years after the date on which all members of the Council
have been appointed.” BW-12 describes the conditions for membership, pay, and other matters relating to the
operations and structure of the TMAC. BW-12 did not include a termination date for TMAC, thus making it permanent.
198 For a list of duties, see 42 U.S.C. §4101a(c).
199
42 U.S.C. §4101a(c)(6).
200 42 U.S.C. §4101a(d)(1)(A).
201 Technical Mapping Advisory Council, Future Conditions Risk Assessment and Modeling, December 2015, at
http://www.fema.gov/media-library-data/1454954261186-c348aa9b1768298c9eb66f84366f836e/
TMAC_2015_Future_Conditions_Risk_Assessment_and_Modeling_Report.pdf. Henceforth referred to as “Future
Conditions” report in footnotes. This report was also released in an interim format in November 2015.
202 42 U.S.C. §4101a(d)(2).
203 42 U.S.C. §4101b(b)(3)(E).
204 The Committee on Financial Services in the House of Representatives, and the Committee on Banking, Housing,
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(OMB) on the recommendations from the TMAC and how FEMA is addressing TMAC
recommendations to improve flood insurance rate maps and flood risk data.205 If FEMA does not
act or defers to act on certain TMAC recommendations, FEMA is also required to explain that
decision in the BW-12 mandated annual report.206 TMAC has produced two annual reports, for
2015 and 2016, in addition to the Future Conditions report and the 2016 National Flood Mapping
Program Review.207
In the 2015 Annual Report, one of the TMAC recommendations was that FEMA should transfer
to a structure-specific flood risk assessment,208 with a complementary recommendation in the
2016 Annual Report that FEMA should develop risk-based structure-specific premiums for all
structures within and outside the SFHA.209 To do so would require data on the elevation of the
first floor of each structure in relation to the BFE.
Funding for Floodplain Mapping
NFIP flood mapping is currently funded in two ways, through (1) annual discretionary
appropriations and (2) discretionary spending authority from offsetting money collected from the
Federal Policy Fee (FPF).210 In FY2015, $100 million was appropriated for flood hazard mapping
and risk analysis. In FY2016, $190 million was appropriated, and in FY2017, $175.5 million was
appropriated.211 The President’s budget request for FY2018, which was submitted to Congress in
May 2017, proposed eliminating the discretionary appropriation for flood mapping.212 However,
in the FY2018 Omnibus, Congress appropriated $262.5 million for flood hazard mapping and risk
analysis.213
The FPF is paid to FEMA and deposited in the National Flood Insurance Fund (NFIF). FEMA has
the authority to set the amount charged for the FPF, but Congress retains the authority to
determine how much to spend, and on what, from the fees collected. The monies available in the
NFIF, other than those used to pay claims, are available only to the extent approved in
appropriation acts as offsetting collections.214 In recent years, Congress has generally followed
the budget request from FEMA with relation to the authorized offsetting collections appearing in
appropriations bills that are funded using the FPF revenue. In addition, Congress generally directs
in appropriations law that FPF revenue in excess of the authorized offsetting collection amounts
and Urban Affairs in the Senate.
205 Section 100215(1), Title II of P.L. 112-141, 126 Stat. 927, as codified at 42 U.S.C. §4101a(l).
206 Ibid.
207 See https://www.fema.gov/media-library/assets/documents/111853.
208 Technical Mapping Advisory Council, TMAC 2015 Annual Report, December 2015, pp. 4-7, https://www.fema.gov/
media-library-data/1454954097105-a94df962a0cce0eef5f84c0e2c814a1f/TMAC_2015_Annual_Report.pdf.
209 Technical Mapping Advisory Council, TMAC 2016 Annual Report, December 2016, p. 3-2,
https://www.fema.gov/media-library-data/149280384107757e4653a1b2de856e14672e56d6f0e64/TMAC_2016_Annual_Report_(508).pdf.
210
For additional explanation of NFIP funding, including the funding for mapping, see CRS Report R44593,
Introduction to the National Flood Insurance Program (NFIP), by (name redacted) and (name redacted)
.
211 CRS analysis of P.L. 114-4, P.L. 114-113, and P.L. 115-31. See also CRS Report R44593, Introduction to the
National Flood Insurance Program (NFIP), by (name redacted) and (name redacted)
.
212 FY2018, Office of Management and Budget, Budget of the U.S. Government, Appendix, Department of Homeland
Security, National Flood Insurance Fund, p. 529, https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/
fy2018/dhs.pdf.
213 P.L. 115-141.
214 See 42 U.S.C. §4017(a)(4) and 42 U.S.C. §4017(f).
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should be spent on floodplain management and mapping. GAO calculated that FEMA should
collect $197 million in revenue from the FPF in 2017.215
Before FY1986, program costs for administrative expenses, surveys, and studies were financed
through congressional appropriations. At the beginning of FY1986, the NFIP was required for the
first time to pay all program and administrative expenses with funds derived from insurance
premiums.216 Funding for floodplain mapping changed again in the Omnibus Budget
Reconciliation Act of 1990,217 when Congress required FEMA to establish the FPF to cover the
administrative expenses incurred in implementing the flood insurance and floodplain
management program. The income from the FPF is designated to pay for floodplain mapping
activities, floodplain management programs, and certain administrative expenses.218 FEMA
disagreed with this change, arguing that the benefits of those programs are enjoyed by all
communities and residents in the floodplain, not just NFIP policyholders. They contended that
most of the salary, study, and floodplain management costs are federal in nature and benefit
taxpayers as a whole through programs that reduce future flood losses and resultant federal
expenditure.219
About 66% of the resources from the FPF are allocated to flood mapping, with floodplain
management receiving about 19% of the overall income from the FPF.220 To the extent that the
private flood insurance market grows and policies move from the NFIP to private insurers, FEMA
will no longer collect the FPF on those policies and less money will be available for floodplain
mapping and management. Concerns have been raised about maintaining the activities funded by
the FPF, with some stakeholders arguing that a form of FPF equivalency, or some form of user
fee, should be applied to private flood insurance.221
Provisions Related to Floodplain Mapping in H.R. 2874
Section 302 would create a new appeal process if FEMA denies a request to
update a flood map based on new information regarding flood elevations or other
flood mitigation factors. The initial appeal would be through a FEMA
administrative process, with the possibility of a further appeal to the Scientific
Resolution Panel.222 This would give communities the opportunity to appeal
requests for a Physical Map Revision, which may currently be prioritized by
FEMA on the basis of available resources; these prioritizations are not subject to
appeal.223
215 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 40, https://www.gao.gov/products/GAO-17-425.
216 Stuart Mathewson, Patrick Causgrove, and Sara Frankowiak, et al., The National Flood Insurance Program: Past,
Present ... and Future?, American Academy of Actuaries, Flood Insurance Subcommittee, July 2011, p. 36, at
https://www.actuary.org/pdf/casualty/AcademyFloodInsurance_Monograph_110715.pdf.
217 P.L. 101-508.
218 42 U.S.C. §4014(a)(1)(B)(iii).
219 Thomas L. Hayes and D. Andrew Neal, Actuarial Rate Review In Support of the Recommended October 1, 2011,
Rate and Rule Changes, FEMA, September 1, 2011, pp. 15-16, https://www.fema.gov/media-library/assets/documents/
23143.
220 Email correspondence from FEMA Congressional Affairs staff, December 6, 2016.
221 Association of State Floodplain Managers, ASFPM Detailed Priorities for NFIP Reauthorization and Reform, June
17, 2016, p. 1, http://www.floods.org/ace-images/Priorities.pdf.
222 For further information on the Scientific Resolution Panel, see https://www.floodsrp.org/index.php.
223 Email correspondence from FEMA Congressional Affairs staff, October 10, 2017.
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Section 306 would require the TMAC within 12 months after enactment to
develop a procedure to use in mapping flood hazards located in communities and
states that choose to develop alternative maps to the FIRMs developed by
FEMA. The recommended standards and requirements would be required to
include procedures for providing notification and appeal rights to individuals
within the communities of the proposed flood elevation determinations. FEMA
would be required to approve or disapprove such proposed maps for use in the
NFIP within six months of receiving the proposed alternative maps. This
provision would therefore allow states and local governments to finance and
develop their own FIRMs independent of the existing process and in accordance
with the TMAC procedures, subject to final approval by FEMA.
Provisions Related to Floodplain Mapping in Senate Bills
S. 1313, Section 404, would require an insurance company that issues a policy
for private flood insurance to impose and collect an annual surcharge equivalent
to the FPF, which would be transferred to the FEMA Administrator and deposited
in the NFIF.
S. 1313, Section 501, would reauthorize the National Flood Mapping Program at
$500 million annually for each of fiscal years 2018 through 2027.
S. 1313, Section 502, would require TMAC within one year after enactment to
develop and establish a set of standards, guidelines and procedures for states,
local governments, and other organizations to use in mapping risk and
developing alternative maps to FIRMS; and also to develop a procedure for
certification by FEMA within 90 days of submission. Upon certification, such
map would be considered the FIRM in effect for all purposes for the NFIP and
would not be able to be revised, updated, or replaced for three years.
S. 1313, Section 503, would encourage the use of high-resolution mapping
technology in the development of FIRMs.
S. 1313, Section 504, would require FEMA to replace the flood zone D
designation224 in levee-protected areas with risk zones that are more appropriate
for the level of protection that the levee affords.
S. 1368, Section 204, would reauthorize the National Flood Mapping Program at
$800 million annually for each of fiscal years 2018 through 2023. This section
would require FEMA to use the most up-to-date and high resolution mapping
technology. This section would also require FEMA to develop a dynamic,
database-derived digital display of structure-specific flood risk i
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