110th CONGRESS, LEGISLATIVE ISSUES A - Z

ISSUE: The National Flood Insurance Program (NFIP), run by the Federal Emergency Management Agency (FEMA), was established in 1968. Prior to its existence, many homeowners, renters, and businesses were unable to insure against flood losses because private insurers did not offer such coverage.

The NFIP is typically reauthorized every few years. The goals of the program are to reduce future flood damage through floodplain management and to provide Americans with flood insurance.

Recent Congressional legislation has been focused on ensuring the fiscal integrity of the program and minimizing the risk to taxpayers in the event of a catastrophic storm. In addition, efforts have been underway to make those living in high-risk areas and those with repeated NFIP claims pay more to support the program. Finally, Congress has considered proposals to expand the program to other natural disasters.

CUNA POSITION: Adequate funding for the program is important to ensure that people living in flood plains are able to secure protection, obtain mandatory coverage, for their homes and mortgages.

OPPOSING VIEWS: After a major storm, numerous flood insurance claims are filed and become extremely costly to the program. It is often argued that people living in flood plains knowingly assume the risk of floods. Other homeowners and taxpayers should not be required to subsidize such obvious and costly risky behavior.

IMPACT ON CREDIT UNIONS: Flood insurance is often required by law in certain areas and thus becomes a necessary purchase by prospective homeowners before credit unions can offer mortgages and other related products to homebuyers in flood prone areas.

STATUS/OUTLOOK: : The National Flood Insurance Act of 2004 (P.L. 108-264) was signed into law on June 30, 2004. It reauthorized the NFIP through 2008. It also included provisions that require people enrolled in the NFIP who live in flood-prone areas to reduce their risk of flooding, or pay higher premiums.

On March 23, 2006, the National Flood Insurance Program Enhanced Borrowing Authority Act of 2006 (P.L. 109-208) was signed into law by President Bush. It increased the borrowing authority for the National Flood Insurance Program to $20.8 billion, from $18.5 billion.

On June 27, 2006, the House of Representatives passed H.R. 4973, the Flood Insurance Reform and Modernization (FIRM) Act of 2006. In addition to increasing FEMA's borrowing authority to $25 billion to cover claims arising from catastrophic hurricanes in 2005, this measure sought to reform perceived weaknesses in the program. On May 25, 2006, the Senate Banking Committee passed legislation to overhaul the NFIP with a strong emphasis on making the program self-sustaining and less likely to need taxpayer money to fund shortages. The two bills were so different that an agreement between the House and Senate on reforming the NFIP never materialized.

On September 27, 2007, the House of Representatives passed H.R. 3121, the Flood Insurance Reform and Modernization Act of 2007, a bill to reauthorize the NFIP for five years. It also includes multiperil coverage for flood and windstorm damages. In addition, the bill phases out subsidized NFIP insurance rates on commercial properties, vacation homes and second homes, a measure designed to decrease the program's financial liability.

The legislation allows small business owners to purchase business interruption coverage so that they can meet payroll and other operating expenses occurred after a major climactic disaster. Also, maximum insurance coverage limits for residential and nonresidential properties are updated. FEMA is also given permission to raise rates from 10 percent to 15 percent annually.

The Administration opposes the bill, contending that the added multiperil insurance coverage would be fiscally irresponsible and undermine the private insurance market.

Senate Banking Committee Chairman Christopher Dodd (D-CT) has indicated that reforming the NFIP is one of his top priorities and that he expects the committee to consider such legislation this year. Other Senators on that Committee have expressed concerns similar to those coming from the Administration.

CONTACTS: John Hildreth, (202) 508-6724, jhildreth@cuna.coop.

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