H.R. 2901, Flood Insurance Market Parity and Modernization Act

H.R. 2901

Flood Insurance Market Parity and Modernization Act

Date
April 26, 2016 (114th Congress, 2nd Session)

Staff Contact
John Huston

Floor Situation

On Thursday, April 28, 2016, the House will complete consideration of H.R. 2901, the Flood Insurance Market Parity and Modernization Act, under suspension of the rules. H.R. 2901 was introduced on June 25, 2015, by Rep. Dennis Ross (R-FL), and was referred to the Committee on Financial Service, which ordered the bill reported by a vote of 53 to 0 on March 2, 2016.

 

Bill Summary

H.R. 2901 amends the Flood Disaster Protection Act to clarify that flood insurance provided by private firms satisfies the requirement that homeowners maintain flood coverage on mortgaged properties that are backed by a federal guarantee and located in a mandatory purchase flood insurance zone. The bill also directs the Federal Emergency Management Agency (FEMA) to consider National Flood Insurance Program (NFIP) federal policyholders who drop their coverage in favor of private coverage and then later return to NFIP as having continuous coverage if they can demonstrate that a flood insurance policy from a private firm was maintained throughout the interim period. Under the bill, an acceptable private flood insurance policy may be issued by insurance companies that are either licensed within a state (aka, admitted insurers), or by eligible non-admitted[1] insurers certified by the state insurance regulator.

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[1] Non-admitted insurance includes coverage for unusual risks typically unavailable in the traditional insurance marketplace. The majority of these policies are purchased by sophisticated commercial entities to cover commercial risk. Since most of the transactions are business-to-business, the surplus lines market is generally less regulated than traditional insurance (or “the admitted”) market. The policies are not protected by guaranty funds. See National Association of Insurance Commissioners website, Nonadmitted Insurance and Reinsurance

Background

Under current law, lenders must require property owners in certain high risk flood zones to purchase flood insurance as a condition of taking out most mortgages. While nominally any privately underwritten flood insurance policy would satisfy this mandate, historically this has generally meant that such property owners were required to purchase a Standard Flood Insurance Policy[1] (SFIP) offered by the federal government’s National Flood Insurance Program (NFIP), which operates under the Federal Emergency Management Agency (FEMA). [2] Residents and business owners in participating communities across the United States and its territories may buy these government-underwritten flood insurance policies through insurance agents and companies that participate as third-party administrators in the NFIP’s Write Your Own (WYO) Program.[3]  Currently, the NFIP has approximately 5.3 million policies providing over $1.3 trillion in coverage in almost 22,000 communities in 56 jurisdictions that participate in the program. Since 1978, the NFIP has paid over $50 billion for flood insurance claims and related costs.[4] The NFIP has approximately $23 billion in outstanding debt borrowed from the U.S. Treasury.

Due to overwhelming federal dominance in the flood insurance marketplace, in 2012 Congress attempted to clarify the law to explicitly make clear that federal agencies must accept private flood insurance to fulfill this mortgage requirement instead of an SFIP if the private flood insurance met the conditions defined in statute.[5] This included a safe-harbor provision that allowed certain private insurance to qualify under the program, if a state insurance regulator determined they met the criteria. However, in order for private insurance to qualify under the law the insurance has to be “at least as broad as the coverage” provided under a SFIP as well as meet other criteria, which has contributed to low participation in the private flood insurance market by insurers. H.R. 2901 amends this provision to enable individual states to determine most of the specifics of private flood insurance coverage accepted.

According to the bill sponsor, “Americans across the country would greatly benefit from more choices when it comes to flood insurance policies. More choices can mean better coverage and cheaper policies for homeowners. Allowing private insurers to come into the government-dominated flood insurance market creates competition and innovation. [This bill] would benefit consumers and remove the excessive restrictions the federal government places on private flood insurance companies.”[6]

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[1] See FEMA Website, Standard Flood Insurance Policy Forms
[2] See CRS Report, “Private Flood Insurance in the National Flood Insurance Program (NFIP),” February 25, 2016.
[3] See FEMA Website, What Is The Write Your Own Program?
[4] See FloodSmart.gov, Flood Facts
[5] See 42 U.S.C. 4012a(b)(7)
[6] See Rep. Dennis Ross Press Release, “Ross Introduces Pro-Consumer, Private Flood Insurance Bill,” April 21, 2016.

Cost

The Congressional Budget Office (CBO) estimates that enacting the bill would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2027

 

Additional Information

For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.