NTU urges all Senators to vote “YES” on S. 1940, the Flood Insurance Reform and Modernization Act of 2012. This legislation is an important first step toward returning the National Flood Insurance Program (NFIP) to solvency, includes additional taxpayer protections, and lays the foundation for a future private flood insurance market.
The NFIP was created in 1968 with the intention, like so many other government funded enterprises, that it would be self-sustaining via flood insurance premiums. However, a “perfect storm” of below-market pricing, severe events with unprecedented damages, and increased building in low-lying areas, has bankrupted the program - leaving taxpayers holding the bag for almost $18 billion plus massive interest payments.
Risk-based rates would be the first of several major reforms implemented by S. 1940 to ameliorate the growing problems with the NFIP. Using the full actuarial costs to determine premium pricing will help ensure that the risks associated with building in flood prone areas are borne by the homeowners, not taxpayers. The increased income from the new premium rates will bring in $4.6 billion over ten years - funds that will be used to begin to pay back taxpayers. By necessity, this will mean increased costs for some, naturally incentivizing homeowners to build in safer areas. For those already in risky areas who are not able to or willing to pay the higher costs associated with risk-based rates, S. 1940 provides help with relocation under flood mitigation.
Together with more accurate mapping of flood plains, helping to ensure that all those who are at risk know the true cost of building or owning a home in the newly designated areas, S. 1940 also includes important provisions that prevent federal backing for property that is not a primary residence. As a result, taxpayers would be spared from bailing out vacation homes, as well as properties that suffer severe repetitive losses. While these policies will help ensure that homeowners are the ones responsible for their own risk management, S. 1940 contains a provision that could one day prove to be the single most important reform of all: opening the door to a robust non-government flood insurance market by requiring FEMA to study private sector financing such as reinsurance and catastrophic bonds.
Ultimately, Congress should work to get government out of the insurance market, where private insurers have been elbowed out by uncompetitive practices. In the meantime, S. 1940 will help lower costs to taxpayers and will discourage unwise building practices.
A “Yes” vote on S. 1940 will be considered the pro-taxpayer vote and will be included in our annual Rating of Congress.
If you have any questions, please contact NTU Federal Affairs Manager Nan Swift at (703) 683-5700