National Flood Insurance Reform

NAR formally weighed in with the House Financial Services Committee on principles released late last year for the reform of the National Flood Insurance Program (NFIP). The NFIP is up for reauthorization on Sept. 30 of this year, and NAR is encouraged that this is an early priority for the Committee. While many of the principles align with NAR’s call for enhanced flood mapping, mitigation flexibility and private market options in addition to the NFIP, the principles are very broad and do not include detailed legislative proposals.

Specifically, NAR supports:

  • Reauthorization of the NFIP, flood mapping and mitigation. According to NAR research, the NFIP was essential to successfully completing half a million home sales in 2015.
  • Inclusion of the Flood Insurance Market Modernization and Parity Act, as unanimously passed by the House 419-0 last Congress (H.R. 2901 by Reps. Ross [R-FL] and Murphy [D-FL]).
  • Providing more flexibility with mitigation assistance and adjusting the increased cost of compliance provisions to enable policyholders to mitigate risk before the property floods.
  • Directing the technical mapping advisory group to develop state flood mapping programs like North Carolina’s that use Light Detection and Ranging (LiDAR) technology to improve granularity at lower cost than FEMA’s flood maps.
  • Aligning the NFIP’s rate setting parameters with those of the private market. According to independent actuarial research conducted for NAR, having more than one risk rate table would enable the program to charge rates closer to the risk for many properties now overpaying into the program.

NAR has offered to lend its members’ experience and resources to assist the Committee in developing detailed proposals of these needed changes.

While the proposal includes many positive aspects, questions remain. Specifically:

  • How long of a reauthorization is the Committee seeking? NAR supports at least a 5 year reauthorization plan.
  • How much reinsurance will NFIP be required to purchase and will Congress authorize appropriations to pay for this? If not crafted well, a large cost increase over a smaller revenue base could result in the need for very large rate increases.
  • How would a phase-out of NFIP be structured for properties valued above NFIP coverage limits? NAR policy supports ensuring access to flood insurance in all markets at all times, especially since it is a requirement for federally-related mortgages. Depending on where the NFIP limit is set, a proposal could inadvertently transfer flood risks back to taxpayers if policyholders lose coverage and have no choice but to again rely on disaster relief in the event of flooding. NAR is also concerned that additional coverage phase-outs could potentially create more confusion for consumers.