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From Banking and Finance Law Daily, June 16, 2017

Two flood insurance bills pass Financial Services Committee

By J. Preston Carter, J.D., LL.M.

The House Financial Services Committee passed two bills to reform and reauthorize the National Flood Insurance Program (NFIP), which is set to expire on Sept. 30, 2017—the National Flood Insurance Program Policyholder Protection Act of 2017 (H.R. 2868) and the 21st Century Flood Reform Act of 2017 (H.R. 2874). The Committee will reconvene on June 21, 2017, to consider an additional four measures to reauthorize the NFIP.

H.R. 2868, sponsored by Rep. Lee Zeldin (R-NY), would protect NFIP policyholders from unreasonable premium rates and require the Federal Emergency Management Agency to conduct a study to analyze the unique characteristics of flood insurance coverage of urban properties. The bill passed the Committee by a vote of 53-0.

H.R. 2874, sponsored by Rep. Sean Duffy (R-Wis), would improve the financial stability of the NFIP, enhance the development of more accurate estimates of flood risk through new technology and better maps, increase the role of private markets in the management of flood insurance risks, and provide for alternative methods to insure against flood peril. The bill passed the Committee by a vote of 30-26.

Hensarling opposes program bailout. In the Committee press release, Chairman Jeb Hensarling (R-Texas) said, "We cannot continue to call on the American taxpayer to bailout a program that is currently drowning in $25 billion of red ink and suffers a $1.4 billion annual actuarial deficit. These bills put the National Flood Insurance Program on a path toward actuarial soundness where all will be protected, no one will be denied a policy, all will benefit from competition, the NFIP will be sustainable, and the national debt clock will spin a little less rapidly." In his opening statement, Hensarling said he opposed a permanent taxpayer subsidy. "[P]eople should gradually—gradually—be expected to pay actuarial rates."

Waters promises amendments. In her opening statement at the Committee markup, Rep. Maxine Waters (D-Calif) expressed concern that "in many respects the package of bills would actually make matters worse by restricting coverage, increasing costs, and opening the door to cherry-picking by the private sector." She added that "Democrats will offer amendments to provide the reauthorization language needed to keep the NFIP’s doors open and keep the real estate market from spiraling out of control."

Committee members Reps. Carolyn B. Maloney (D-NY) and Lee Zeldin (R-NY) praised passage of the NFIP Policyholder Protection Act, stating that it would result in a credit to homeowners with NFIP policies who invest in mitigation activities, such as elevating their homes, adding porous foundations, or moving boilers to a higher floor, which would result in lower premiums and help reduce the cost to homeowners.

ABA’s grave concerns. In its memorandum to the Committee, the American Bankers Association expressed "grave concerns" over a section of the 21st Century Flood Reform Act of 2017 that would "provide for the elimination of coverage for properties with excessive lifetime claims, defined in the bill as claims exceeding twice the replacement cost of the property." The ABA stated that "Cutting off such properties from NFIP coverage will likely lead to significant hardship for homeowners, lenders and communities." The association also opposes the bill’s increase in penalties for lender non-compliance from $2,000 to $5,000.

FSR applauds package. The Financial Services Roundtable applauded the Committee’s legislative package of "reforms to improve the consumer experience and increase private sector involvement." The FSR stated that many reforms will better enable the Write-Your-Own insurance program to deliver insurance coverage to consumers.

Companies: American Bankers Association; Financial Services Roundtable

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