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Washington, DC - The House Financial Services Committee today passed H.R. 3121, The Flood Insurance Reform and Modernization Act of 2007, which will bring about significant and much-needed reforms to the National Flood Insurance Program (NFIP). The bill will ensure the program’s continued viability by encouraging broader participation, increasing accountability, eliminating unnecessary Federal subsidies and updating the flood insurance program to meet the needs of the 21st century. The bill also includes provisions authored by Congressman Gene Taylor (D-MS) to include multiperil coverage for flood and windstorm damages. The bill reauthorizes the program for five years.
The catastrophic Hurricane season of 2005 ended with an unprecedented number of claims is part of the reason why we must pass this bill, and many of the weaknesses of the NFIP became self-evident after the hurricanes,” Said Rep. Waters. “One of the weaknesses of NFIP is the lack of coverage for wind damage. This bill remedies the deficiency by including a multiple peril provision to cover wind risk. I support adding wind coverage to the NFIP for a number of reasons. Rep. Waters is the Chairwoman of the Committee’s Housing and Community Opportunity Subcommittee.
Congressman Gene Taylor said, "Last August, Speaker Pelosi came to my home town and spoke to a crowd of people who related to her their insurance-related horror stories in the wake of Hurricane Katrina. Congresswoman Pelosi said that if the Democrats were trusted with control of Congress that the new majority would work to see that legislation was passed to ensure that this never happens again. Today, the House Financial Services Committee led by Chairman Frank and Subcommittee Chairs Waters and Kanjorski, took a very important step toward keeping that promise."
“We have taken the necessary steps to reform a needed program for homeowners, and we have responsibly expanded the program to cover wind related damages from major weather events,” added House Financial Services Committee Chairman Barney Frank.
The bill addresses a number of weaknesses in the NFIP that were exposed by the unprecedented 2005 hurricane season. In an effort to make the program more actuarially sound, the NFIP phases out subsidized rates on vacation homes and second homes. Small business owners will be eligible to purchase business interruption coverage at actuarial rates to better prepare them to meet payroll and other obligations during the next big storm. And, for the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties.
The bill requires greater accountability and financial responsibility at the NFIP. FEMA is required to report to Congress on the financial status of the NFIP and conduct a thorough review of the nation’s flood maps. The bill makes the updating and modernization of flood maps an ongoing process, and increases funding for mapping.
Disclosures to consumers about flood insurance are clarified in the bill. The bill also provides for “plain language” policy information for consumers, and an appeal process for when consumers have to have insurance when new flood zone maps are issued. The bill increases the amount FEMA can raise rates in any given year from 10 percent to 15 percent. And, in order to help ensure that those homeowners who should have flood insurance do have flood insurance, the bill increases the fines on lenders who do not enforce the mandatory flood insurance policy purchase requirement for those who live in a floodplain and hold a federally-backed mortgage.
The NFIP borrowing authority is increased to ensure that all outstanding claims and Federal obligations are paid. The current borrowing authority of the NFIP is $20.775 billion of which the NFIP has borrowed nearly $18 billion. Until the 2005 hurricane season, the borrowing authority of the NFIP was $1.5 billion Annual revenue from policy premiums is just over $2.5 billion, which is currently enough to meet the program’s claim payment obligations (not allowing for any major flood event such as Hurricane Katrina) and annual interest payments of approximately $800 million on its outstanding debt. Note that the NFIP has been self-supporting and has always repaid, with interest, funds it has borrowed from the Treasury except for just over $1 billion in borrowing authority that was forgiven in the early 1980s.
Congressman Taylor’s (D-MS) language on multiperil in Section 7 will increase coverage for flood and windstorm damages. This section incorporates the text of H.R. 920. It expands the NFIP to provide for an optional multiple peril policy to cover wind and flood risk-in-one policy. This section requires premiums for the new optional coverage to be risk-based and actuarially sound, so that the program would be required to collect enough premiums to pay claims.
Under this section, multiple peril policies would be available where local governments agree to adopt and enforce building codes and standards designed to minimize wind damage, in addition to the existing flood program requirements for flood plain management. Any community participating in the flood insurance program could opt into the multiple peril option. The multiple peril residential policy limits is $500,000 for the structure and $150,000 for contents and loss of use. Nonresidential properties could be covered to $1,000,000 for structure and $750,000 for contents and business interruption. Section 7 was amended during committee consideration of the bill to prohibit new flood/wind policies or renewing existing flood/wind policies if NFIP is borrowing to pay wind/flood claims, and such new policies or renewals cannot happen again until borrowed amounts repaid.
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