On Nov. 14, the U.S House of Representatives passed the 21st Century Flood Reform Act (H.R. 2874) to address the issue of the cost of repeatedly flooded properties draining the National Flood Insurance Program (NFIP), which is already in significant debt.
There are five sections to the bill: policyholder protection and information, increasing consumer choice through private market development, mapping fairness, protecting consumers and individuals through improved mitigation, and program integrity. Here are the highlights of each section:
|Policyholder protections and information
This section limits annual premium increases to 15% and annual increases will be no less than 5%. Much of the NFIP's financial issues arise from inadequate premiums. The bill authorizes an affordability program to provide financial assistance to those with incomes below 150% of the poverty level for the state through a state program.
The state will verify income, rate increases will be limited on eligible households, and a surcharge will be applied to each flood policy to help pay for this assistance to eligible households. Monthly installment payments will now be acceptable, and policyholders will be advised of their full flood risk determinations and the actuarial soundness of their premiums.
Upon transfer of property, the flood risk information for the property must be disclosed to the purchaser after Sept. 30, 2022. Otherwise, no new flood coverage may be provided.
|Increasing consumer choice through private market development
The Write Your Own Program will no longer contain a non-compete clause, thus allowing insurers, agents, brokers and others to offer and sell private flood insurance. ISO has already developed commercial and personal flood programs that are currently being filed with the states.
Information accumulated by the NFIP related to risks of flooding on individual properties, loss ratios, current and historical claims information, identification of mitigation efforts or lack thereof will be made public through an open-source data system. A publically searchable database of community information will be established no later than 12 months after the enactment of this section.
Cancellation of a policy due to replacement with another flood policy will generate a refund of unearned premium. The cancellation will be effective the date the new policy is effective. Definitions of the terms federal flood insurance, flood insurance, mutual aid society, private flood insurance and state are provided in the bill.
The establishment of flood damage savings accounts will be allowed once reviewed and determined to be feasible. A flood damage savings account is an account established by the owner of a property and the proceeds are available only to cover losses from flooding.
|Mapping fairness
Risk assessment data and tools to identify flood areas will be identified and used. The state, local government or owners of property may appeal a denial of a request to update a flood map. The appeal must be based on knowledge that the map is scientifically or technically inaccurate or that factors exist that mitigate the risk of flooding.
|Protecting consumers and individuals through improved mitigation
This section amends the provision of community rating system premium credits to the maximum number of communities practicable.
Related: Superstorm Sandy 5 years later: What have we learned?
|Program integrity
This amends the act to review and eliminate nonessential costs within the program and to have an independent actuarial review of the program to be conducted annually. Provision is made for a nonrefundable annual surcharge to be applied to all policies newly issued or renewed after the date of this section.
The surcharge is $40 except for residences that are not the primary residence of an individual and eligible for preferred risk rate method premiums; the surcharge for these properties is $125. Nonresidential properties and properties that are not primary residences and are not eligible for preferred risk rate method premiums will be surcharged $275.
Multiple-loss, repetitive-loss, severe repetitive-loss properties and extreme repetitive-loss properties are all defined in the bill. Premiums for such policies will be adjusted by no less than 15% annually until such rates reflect the current risk of flood.
If the owner of an extreme repetitive-loss property receives claim payment under this title and refuses an offer of mitigation for the property, flood insurance will not be made available to that owner through the flood program. Grants will be made to property owners in coordination with the state and community in order to carry out mitigation activities to reduce flood damage to extreme repetitive-loss properties.
The bill now must go to the Senate for approval. The hurricanes of 2017 strongly showed how desperately flood reform is needed, not only in policy availability but also in mitigation efforts.
Christine G. Barlow, CPCU, ([email protected]) is managing editor with FC&S, the premier resource for insurance coverage analysis. She has an extensive background in insurance underwriting. For additional information on FC&S Online, visit www.NationalUnderwriter.com.
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Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.
