Issue: Floods are the most common and most destructive natural disaster in the United States. Ninety percent of all natural disasters involve flooding, and all 50 states have experienced floods or flash floods in the past five years, according to Floodsmart.gov. The damage from a flood is not covered under a standard homeowners policy. Flood insurance is a special policy that is federally backed by the National Flood Insurance Program (NFIP) and available for homeowners, renters and businesses.
Background: The NFIP was created as a result of the passage of the National Flood Insurance Act of 1968. Congress enacted the NFIP primarily in response to the lack of availability of private insurance and continued increases in federal disaster assistance due to floods. At the time, flood was viewed as an uninsurable risk and coverage was virtually unavailable from private insurance markets following frequent widespread flooding along the Mississippi River in the early 1960s. The NFIP is a Federal program, managed by the Federal Emergency Management Administration (FEMA), and has three components: to provide flood insurance, to improve floodplain management and to develop maps of flood hazard zones.
The NFIP allows property owners in participating communities to buy insurance to protect against flood losses. Participating communities are required to establish management regulations in order to reduce future flood damages. This insurance is intended to furnish as an insurance alternative to disaster assistance and reduces the rising costs of repairing damage to buildings and their contents caused by flood. A homeowner is able to purchase excess flood insurance, but they must be covered by NFIP flood insurance first. Information detailing how to obtain flood insurance can be found at www.floodsmart.org, the official site of the NFIP.
Since NFIP’s inception, additional legislation has been enacted to strengthen the program, ensure its fiscal soundness and inform its mapping and insurance rate-setting. More recently:
- On July 6, 2012, President Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12),which reauthorized the NFIP through Sept. 30, 2017, and made a number of reforms aimed at making the program more financially and structurally sound. The purpose of the legislation was to change the way the NFIP operates and to raise rates to reflect true flood risk, as well as make the program more financially stable. As implementation moved forward, constituent concerns over flood insurance premium increases prompted legislative efforts to modify some of the BW-12 reforms.
- On March 21, 2014, President Obama signed the Homeowner Flood Insurance Affordability Act of 2014 into law, which repeals and modifies certain BW-12 provisions and makes additional program changes to other aspects of the NFIP. According to FEMA, the law lowers the rate increases on some policies, prevents some future rate increases, and implements a surcharge on all policyholders. It also repeals certain rate increases that have already gone into effect and provides for refunds to those policyholders.
Click here for an overview of the Homeowner Flood Insurance Affordability Act of 2014.
Private Flood Insurance
The Flood Insurance Market Parity and Modernization Act (H.R. 2901) was recently introduced to help facilitate the development of the private flood market and to address some of the unintended consequences resulting from the BW-12. Provisions in BW-12 have made it more difficult for companies willing to offer private flood insurance products.
While the market for private flood insurance remains relatively small, in recent years, more sophisticated risk mapping and modeling have developed, enabling the private market to more accurately price the risk and generating new interest among private insurers to provide such coverage. Although BW-12 affirmed Congress’s intent that lenders can accept private flood insurance as an alternative to the NFIP, the definition and prescriptive conditions have created a significant obstacle impeding the development of a private market.
The NAIC supports H.R.2901 as it will encourage greater growth in the private flood insurance market and provide consumers with additional choices for flood insurance products.
Status: The NAIC Property and Casualty (C) Committee is charged to coordinate with the NFIP on the regulation of flood insurance and to continue developing a handbook or white paper to assist state insurance regulators in understanding the federal flood insurance program and how it interacts with state insurance regulation.