FEMA Reverses Halt to New Flood Policies during Shutdown; New Six-Month NFIP Extension Leaves Debate over Reforms to 116th CongressFollowing criticism from industry groups and members of Congress, FEMA has retreated from a December 27 announcement that it would stop issuing new flood policies and renewals during the ongoing partial shutdown of the federal government. Meanwhile, a six-month extension passed by Congress and signed by President Trump on December 22 gives lawmakers through May 31, 2019, to reach consensus on possible reforms for the National Flood Insurance Program (NFIP).

Costly natural disasters in recent decades have tested the sustainability of the program, and in 2017, Congress forgave $16 billion of NFIP’s debt to keep the program solvent. These challenges have led some in Congress and the insurance industry to call for reforms to the program, including changes to align rates more closely with risk.

Changes in the makeup of the 116th Congress may reshape the debate, including the passing of the chairmanship of the House Financial Services Committee from Jeb Hensarling, an advocate for substantial changes to NFIP, to Maxine Waters. Waters previously sponsored legislation that would have brought significant reforms to NFIP, but in recent years has emphasized the need to ensure that rates remain affordable.

The reauthorization of NFIP, even as leaders failed to agree on funding for the government, again demonstrates the bipartisan popularity of the program and commitment to its continuity, notwithstanding disagreement over long-term changes.

Debate over NFIP Reforms Likely to Extend into 2019A new short-term extension through December 21 leaves the National Flood Insurance Program (NFIP) in limbo as Congress grapples with a lengthy to-do list in advance of the holidays.  NFIP, the biggest source of flood coverage in the U.S., has been reauthorized through a set of short-term extensions in the last year as lawmakers debate the prospect of reforms to the program. NFIP has struggled to remain solvent in the wake of costly hurricanes, but lawmakers have not yet reached a consensus on how to make the program more sustainable.

In the face of the most recent extension, FEMA published a statement calling the short-term reauthorization “an opportunity for Congress to take bold steps to reduce the complexity of the program and strengthen the NFIP’s financial framework so that the program can continue helping individuals and communities take the critical step of securing flood insurance.” We have previously written about FEMA’s own changes to the program, including steps to loosen restrictions on private insurers selling NFIP policies, as well as purchasing reinsurance for the program. Congress will have to determine the viability of other changes, such as proposals to make rates correspond more accurately to risk and funding for mitigation of flood-prone areas.

The short-term extension through December 21 puts NFIP reauthorization on the same timetable as other significant legislative deadlines, including the expiration of a continuing resolution to fund the government. Should Congress pass another extension for NFIP without making changes to the program, the 116th Congress will take up the debate with several changes to the key players in the negotiations. Most notably, current House of Representatives Financial Services Committee chair Jeb Hensarling will be succeeded by incoming chair Maxine Waters.  Waters co-authored a reform act in 2012 that would have significantly curbed government subsidies to premiums, but in recent years has advocated a more cautious approach to rate increases.

National Flood Insurance Program Shows Continued Promise--and Limitations--for Businesses Recovering from Hurricane LossFollowing record-setting levels of rainfall in the Carolinas from Hurricane Florence, businesses both in and outside of affected areas will likely be reviewing their flood coverage to assess how it will respond to adverse weather events. Although private flood insurance is on the rise, the National Flood Insurance Program (NFIP) remains by far the biggest source of flood coverage in the U.S.

NFIP was created in 1968 to address the problem of disaster relief costs and is administered by a department of the Federal Emergency Management Agency (FEMA). For participating communities, NFIP makes federally subsidized flood insurance available in special flood hazard areas. NFIP policies can be purchased directly from the government or from private carriers through the “Write Your Own” program.

Commercial policyholders under NFIP can obtain coverage for up to $500K for a building, and up to an additional $500K for certain types of personal property. These are single peril policies – they only cover direct physical damage caused by flood up to the property’s cash value. Notably, NFIP does not provide business interruption coverage for lost profits due to a shutdown of an insured’s operations. These limitations highlight the need for excess flood insurance coverage, as many businesses will need more than $500K in commercial property coverage; coverage for business interruption arising from flood; and coverage for the full replacement cost of lost property, rather than just cash value.

We have previously written about NFIP’s efforts to remain solvent in the face of multibillion-dollar flood insurance losses over the last 15 years. Last year, Congress passed a bill to forgive $16 billion owed by NFIP to the U.S. Treasury in order to ensure the program remains solvent. The program is currently authorized through November 30, 2018, as a result of seven temporary extensions by Congress over the last year. These steps by Congress reflect bipartisan support for a program that provides an important role in disaster recovery, but consensus has not yet developed around new long-term legislative reforms. This year, FEMA has introduced several changes to the program intended to manage its exposure, including loosening restrictions on private policies in the Write Your Own program, reducing compensation for private insurers who sell NFIP policies, and purchase of reinsurance for the program. We will continue to monitor the effect of these changes, as well as new initiatives and their impact on policyholders.