Bills
| 3.23.22

Should the National Flood Insurance Program Be Reauthorized Through September 30? (H.R. 2578)

Do you support or oppose this bill?

What is H.R. 2578?

(Updated June 13, 2020)

This bill — the National Flood Insurance Program Extension Act of 2019 — would extend the National Flood Insurance Program’s (NFIP) authorization from its current date of May 31, 2019, to September 30, 2019.

Argument in favor

The National Flood Insurance Program (NFIP) is the primary source of flood insurance for over five million families and businesses. Reauthorizing it keeps these people and businesses protected in case of floods, which are becoming increasingly common. Congress needs to ensure that the NFIP doesn’t lapse for even a short period of time.

Argument opposed

The NFIP’s existence prevents the private sector from offering its own flood insurance options, which could be better-run and more efficient than the NFIP (which is in tremendous debt). Rather than extending NFIP, Congress should encourage the private sector to offer flood insurance again, as it did before the 1950s.

Impact

Homeowners and businesses in flood-prone areas; NFIP policyholders; National Flood Insurance Program (NFIP).

Cost of H.R. 2578

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Reps. Maxine Waters (D-CA) — who has long advocated for a term-term reauthorization of the National Flood Insurance Program (NFIP) — and Patrick McHenry (R-NC) introduced this bill to extend the NFIP’s authorization to September 30, 2019 from its current expiration of May 31, 2019. In a joint press release, the Representatives said:

“We have introduced legislation to extend the NFIP’s authorization to September 30, 2019. It is important that Congress does not allow the National Flood Insurance Program to lapse. This extension prevents harm to homeowners and the housing market while also providing time to reach bipartisan consensus on much-needed reforms to the program. We remain committed to a long-term bipartisan flood insurance reauthorization bill and will continue to work together toward that goal.”

In opening remarks at a House Financial Services Committee hearing on the NFIP’s reauthorization, Rep. Waters said:

“[T]e National Flood Insurance Program (NFIP)...  is critical to ensuring access to flood insurance coverage across this country. But the NFIP is much more than just an insurance program. The NFIP plays an important role in disaster preparedness and resiliency by providing flood maps, setting standards for floodplain management, and investing in mitigation for our homes, businesses, and infrastructure. According to the Federal Emergency Management Agency, everyone is at risk of flooding. That means that this is not just a coastal issue and it means that we all have an interest in ensuring a strong National Flood Insurance Program. I have long advocated for a long-term reauthorization of the NFIP in order to provide certainty in the housing market. Unfortunately, the NFIP has been carried along through ten short-term extensions since Fiscal Year 2017, and has even experienced brief lapses during that time. This haphazard approach to legislating puts communities at risk and undermines the health of our housing market. The NFIP’s authorization is currently set to expire on May 31, 2019, and I believe that we will break this cycle. I intend to work in a bipartisan manner, with the Ranking Member, Mr. McHenry, to provide a long-term reauthorization to restore stability and confidence in the market.”

In testimony before the House Financial Services Committee in March 2019, the National Association of Realtors (NAR) expressed its support for efforts to reform NFIP’s mapping and mitigation programs and ensure the NFIP program’s future. Mabél Guzmán, a 21-year realtor from Chicago, testified:

"The embattled National Flood Insurance Program is central to U.S. disaster preparedness efforts…[T]he program is also essential to completing half-a-million home sales per year, each of which contributes two jobs and $80,000 to America's economy. However, the NFIP was not designed nor intended to address the catastrophic loss years we have seen since 2005, meaning the program is not sustainable as currently structured… Congress should reauthorize and reform the NFIP before its insurance writing authority expires on May 31. As we have seen, a never-ending string of short-term extensions only maintains an uncertain status quo, while program shutdowns jeopardize homes, businesses, communities and the U.S. economy. NAR stands ready to work with this Committee to pass meaningful NFIP and private-market reforms that help property owners and renters prepare for and recover from future flood losses."

In July 2018, the NAR was joined by the American Bankers Association, American Insurance Association, National Apartment Association, National Association of Home Builders, and others in writing a letter to Congress advocating for the NFIP’s reauthorization. In their letter, the organizations wrote, “A lapse of the NFIP… will leave millions of Americans at risk and result in severe disruption in the over 20,000 communities across the United States that depend on the NFIP. “

Congressional Republicans want to reform the NFIP to encourage more private insurance and decrease cost to federal taxpayers. Democrats contend that without a federal backstop, insurance costs could be too high for many homeowners.

In testimony to the House Financial Services Committee in March 2019, Raymond J. Lehmann, director of finance, insurance, and trade policy at the Street Institute, spoke about NFIP’s past troubles and the tension between government programs and the private sector. Lehmann pointded to NFIP’s lack of sustainability and insufficient mitigation incentives, and noted that it discourages the adoption of private alternatives. He argued that private insurance can help close the protection gap for those whose needs fall outside of NFIP’s coverage. According to the Congressional Research Service (CRS), private insurer interest in directly providing and underwriting flood risk has increased in recent years, as advances in the analytics and data used to quantify flood risk, along with increases in capital market capacities, may allow private insurers to take on previously-shunned flood risks.

This bill has one cosponsor, Rep. Patrick McHenry (R-NC).


Of Note: Prior to 1950, flood insurance was often included in standard homeowners’ insurance policies. However, in response to increasingly severe and frequent flood-related losses in the 1950s, insurance companies began excluding flood insurance coverage and selling separately. By the 1960s, widespread flooding along the Mississippi River caused most private insurers to flee the flood insurance business altogether, leaving many consumers with virtually no access to private flood insurance. This lack of available flood insurance for consumers left them vulnerable in the event of floods, and also left taxpayers vulnerable to bearing the costs of flood damage through post-disaster relief after floods.

Thus, the National Flood Insurance Program was created in 1968 to reduce the impact of flooding on private and public structures. The NFIP provides affordable flood insurance to property owners, renters, and businesses. It also encourages communities to adopt and enforce floodplain management regulations. In 2018, NFIP provided $1.3 trillion worth of coverage to over 5 million homes and businesses. Today, the NFIP is the principal provider of primary flood insurance in the U.S., covering over five million households and businesses.

According to the Federal Emergency Management Agency (FEMA), which administers the NFIP, these efforts help mitigate the effects of flooding on new and improved structures. Additionally, for millions of households in the United States, the NFIP is their only source of flood insurance.

However, some argue that the NFIP is inefficient and poorly run. In its 50 years of operation, the NFIP has borrowed over $30 billion from taxpayers, and it currently operates on a $1.4 billion annual deficit. Additionally, some critics contend that the NFIP is not as innovative as it should be, given that it is a company with $1.2 trillion of insurance coverage.

Due to the NFIP’s large debt burden (it was $24.6 billion in 2017) and an imbalance between incoming premium receipts and payments to owners of flood-damaged properties, no one seriously expects the program’s financial situation to improve if it continues to be run as is. The Government Accountability Office (GAO), recognizing the NFIP’s untenable financial position, has had it on its “High Risk List” since 2006.

Over the past few years, the NFIP’s reauthorization and the terms under which the program should be extended have become a contentious issue in Congress. In 2017, Congress forgave $16 of NFIP debt to keep the program solvent, and the NFIP’s ongoing challenges have led some in Congress and in the insurance industry to call for reforms to NFIP, including changes to align rates more closely with risk. If this bill were to be enacted, it’d be the 11th short-term of the NFIP in less than two years. The last long-term reauthorization of the NFIP was when Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12).


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / RoschetzkyIstockPhoto)