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Senate Banking Committee Proposes Flood Reauthorization Bill Phasing Out Subsidies, Forgiving Debt

Source: National Underwriter - Arthur Postal

Posted on 19 Jul 2011

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The leadership of the Senate Banking Committee has proposed flood insurance reauthorization that mandates a phase out of subsidies while forgiving the program's debt.

Senator Tim Johnson (D-SD), chairman of the committee, and Senator Richard Shelby (R-AL), ranking minority member of the panel, floated the draft legislation this past weekend, which is aimed at reauthorizing the National Flood Insurance Program (NFIP) through Sept. 30, 2016.

The bill gives the Federal Emergency Management Agency (FEMA) great leeway in setting rates, especially in areas subject to mandated flood insurance through new mapping. All new flood-insurance policies would be priced at actuarial rates as of the date of enactment.

It would also require FEMA to tighten its controls over the Write-Your-Own program, which has been heavily criticized by the Government Accountability Office as poorly managed.

The bill, similar to one proposed by Shelby in 2008 and passed by the Senate later that year, would forgive the approximate $18 billion debt accumulated by the program because of Hurricanes Katrina and Rita in 2005. It would also limit the program’s borrowing authority with the U.S. Treasury to $1.5 billion.

A maximum two-year phase-in of actuarial rates would be required under this bill.

The House bill, H.R. 1309, the Flood Insurance Reform Act of 2011, is quite different, phasing in actuarial rates over a much longer period, up to 10 years.

At the same time, the Johnson-Shelby bill adds a requirement for FEMA to allow customers that do not already have their premiums escrowed every month to pay their policies in installments, “providing a more affordable option for consumers purchasing insurance.”

The House bill allows quarterly payments for people whose premiums are not escrowed. Currently, FEMA requires a single, annual payment.
It would also allow FEMA to raise rates up to 15 percent annually; the House bill limits annual increases to 10 percent.

The House bill also calls for a strong local role in remapping, while the Shelby bill would leave the matter to professionals.

The bill includes a provision added by a flood amendment last week to the House bill that requires FEMA to set up a reserve fund aimed at ensuring that the NFIP has the ability to pay off losses during heavy flood periods.