The Future of the National Flood Insurance Program – A Legislative Update

Bradley Arant Boult Cummings LLP
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Bradley Arant Boult Cummings LLP

Congress has reauthorized the National Flood Insurance Program (NFIP) through February 18, 2022.  Prior to this most recent temporary reauthorization, the NFIP had been set to expire on December 3, 2021. Since 2017, there have been 18 temporary reauthorizations as more comprehensive and permanent legislative solutions to the program have failed to gain traction in Congress.

In the fall of 2021, Florida Sen. Rick Scott introduced three bills to reform the NFIP.  Scott’s bills target, in part, the rate increases associated with FEMA’s Risk Rating 2.0 that are expected to impact more significantly property owners in coastal states such as Florida. Scott’s bills seek to encourage growth of the private flood insurance market through, among other proposals, an amendment to the NFIP’s “continuous coverage” requirement that property must keep an active NFIP policy to remain eligible for certain premium discounts. Under Scott’s proposal, consumers would remain eligible for those premium discounts even if they purchase a private flood insurance policy. In addition, Scott previously joined Sen. Mike Lee to sponsor a number of other bills seeking to revise the NFIP.

In November 2021, the National Flood Insurance Program Reauthorization and Reform Act of 2021 (NFIP Reauthorization and Reform Act) was introduced to the House and Senate – and H.R. 5802 and S. 3128 respectively. The nearly identical bills were introduced by Rep. Frank Pallone Jr. and Sen. Robert Menendez, both of New Jersey. The bills have bipartisan support from senators and representatives in Florida, Louisiana, Maryland, Mississippi, Pennsylvania, and New York. The NFIP Reauthorization and Reform Act specifically addresses concerns relating to Risk Rating 2.0 and the rate increases policyholders expect to see each year.

As we previously noted, FEMA designed Risk Rating 2.0 so that flood insurance rates would be based on the actual flood risk and value of individual properties in efforts to provide more accurate pricing. Although FEMA anticipates many policyholders will see rate decreases, the new risk rating system places individuals in coastal areas at risk of facing significant year-over-year premium rate increases until the property reaches it full risk rate. Currently the NFIP contains an annual premium rate increase of 18% per year. The NFIP Reauthorization and Reform Act proposes to reduce the annual premium rate increase cap to 9% per year, maintaining the existing exceptions for misrated and lapsed policies.

For the past several years, when the NFIP was set to expire, Congress has temporarily authorized renewal of the NFIP without much review or consideration. The most recent reauthorization was included in a stopgap bill to keep the government funded through February 18, 2022.  Though a number of bills that could overhaul the NFIP have been introduced, there appears to be little appetite in Congress for such bills. The rollout of Risk Rating 2.0 and the continued introduction of program-altering bills could require Congress to give the NFIP more attention than we have seen in prior years. Stay tuned as we continue to provide updates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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