Flood Insurance Update

The National Flood Insurance Program was a mess already. Then we added Harvey and Irma! See below from the Insurance Journal.

White House Proposes NFIP Reforms

BY JENNIFER WEBB

On Wednesday night, the Trump Administration sent a letter to Congress requesting $12.77 billion in emergency hurricane relief funds and $16 billion for the NFIP. The letter also outlined a number of substantial reforms that the Administration believes should be made to the NFIP.

The NFIP estimates the program will exhaust all its financial resources and be unable to pay claims by the week of Oct. 23. This includes a $30.4 billion line of credit with the Treasury Department. As such, the Administration proposes canceling $16 billion of the program’s existing debt—the projected loss the NFIP will incur from Hurricanes Harvey, Irma and Maria.

The letter notes the NFIP is “not fiscally sustainable” and needs not only immediate financial relief but a number of reforms to place it on “sound financial footing” and “enable the private market for flood insurance to expand.” The Administration’s suggested reforms include:

  • Establishing a means-tested, targeted affordability program for low income policyholders who face rate increases.
  • Creating a new category of “extreme repetitive loss” properties and giving the NFIP the ability to discontinue coverage for such properties in some circumstances.
  • Exempting reserve fund assessments from the current caps on annual rate increases for pre-FIRM properties, and raising reserve fund assessments for all properties based on the fund balance.
  • Prohibiting the NFIP from insuring new construction in the highest risk flood zones and from selling new insurance policies for commercial structures. The NFIP could, however, continue to offer flood insurance to commercial properties currently in the program that maintain continuous coverage.
  • Clarifying that the NFIP can operate as it does today (i.e. a government program with industry assistance) or as an industry program with government financial assistance (i.e. risk pools or risk-sharing agreements with private companies).
  • Clarifying that private flood policies can satisfy NFIP mandatory purchase and continuous coverage requirements, eliminating non-compete requirements for the insurers that service the NFIP, and making NFIP data available to the private market.
  • Enabling the NFIP to move away from current proof of loss requirements and amending certain underwriting policies.
  • Requiring states to establish certain minimum flood risk reporting requirements for sellers and lessors before transactions close as a condition of participation in the NFIP.
  • Studying if NFIP mandatory purchase requirements increase the number of Americans covered by flood insurance.

The letter also requests $576.5 million to help respond to catastrophic wildfires that have been burning in many Western states.

Congress is expected to debate these issues later this month, but it is unclear whether it will address substantial NFIP reforms. The program is currently set to expire on Dec. 8.