Federal Flood Insurance Program in Hot Water
By: Margarita Tapia
Last September, President Barack Obama signed a one-year extension of the National Flood Insurance Program (NFIP) into law. This year, with a new Congress that is focused on cost-cutting, getting another extension of this critical program is shaping up to be more difficult than ever.
The NFIP was congressionally authorized in 1968 and requires periodic extension by Congress. In recent years, Congress has not passed a long-term extension of the program and instead has opted to pass numerous short-term extensions. Last year was an incredibly difficult year for the program, and it expired three separate times only to be brought to life again each time by retroactive extensions passed by Congress. The year culminated with the president’s signature on S. 3814, the “Flood Insurance Extension Act of 2010,” which extended the flood program until Sept. 30, 2011.
While Sept. 30 may seem like a long way off, the reality is that is a nanosecond on Capitol Hill. Consequently, the Big “I” is already working overtime on educating members of Congress, their staff and the Obama administration on the importance of this critical program. The Big “I” is the only producer group working in a coalition of financial services trade associations supporting extension of the NFIP. The Big “I” hopes that these combined efforts will convince policymakers to undertake a long-term extension of the program and prevent the series of expirations the program experienced in 2010. Expirations of this important program, even for a week, provide concrete damage to the fragile economy. In June 2010 alone, the National Association of Realtors estimates that almost 50,000 real estate closings were either significantly delayed or cancelled due to the month-long expiration of the NFIP.
Unfortunately, even despite the strong economic arguments for extending this program, the reality is that a long-term extension could be an uphill battle in this new Congress. The new Republican House is taking full aim at cutting the federal budget and the deficit, and President Obama is quickly adjusting to the new political landscape and proposing his own series of cost-cutting initiatives. With more than 100 new members of Congress, and with almost all of them both strongly advocating budget cuts and having little experience or familiarity with the flood program, the Big “I” is concerned that there may be some misguided attempts to eliminate or completely privatize the NFIP in the name of cutting the budget. (See sidebar for more information on the NFIP’s true impact on the federal budget.)
In fact, there is already one proposal that has been put forth in Congress that would completely eliminate the NFIP. H.R.435, the “National Flood Insurance Program Termination Act of 2011,” was recently introduced by Rep. Candice Miller (R-Mich.). This proposal would eliminate the entire NFIP and instead allow individual states to join together to form flood insurance compacts. The Big “I” is strongly opposed to this misguided bill and is already working to ensure it does not gain momentum in the House. Although the Big “I” is confident it can educate other members of Congress about the dangers of this proposal, its mere existence signals that a long-term extension of the NFIP before its expiration on Sept. 30 will be a hard fought battle in this new Congress.
Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.
A Look at the NFIP Numbers
Some critics of the National Flood Insurance Program (NFIP) say that it amounts to a tax-payer bailout for disaster assistance. However, in looking at the hard numbers of the program, with the exception of the truly historic losses of the 2005 hurricane season, the program has clearly been a good deal for taxpayers. Consider that:
The NFIP was congressionally authorized in 1968 and requires periodic extension by Congress. In recent years, Congress has not passed a long-term extension of the program and instead has opted to pass numerous short-term extensions. Last year was an incredibly difficult year for the program, and it expired three separate times only to be brought to life again each time by retroactive extensions passed by Congress. The year culminated with the president’s signature on S. 3814, the “Flood Insurance Extension Act of 2010,” which extended the flood program until Sept. 30, 2011.
While Sept. 30 may seem like a long way off, the reality is that is a nanosecond on Capitol Hill. Consequently, the Big “I” is already working overtime on educating members of Congress, their staff and the Obama administration on the importance of this critical program. The Big “I” is the only producer group working in a coalition of financial services trade associations supporting extension of the NFIP. The Big “I” hopes that these combined efforts will convince policymakers to undertake a long-term extension of the program and prevent the series of expirations the program experienced in 2010. Expirations of this important program, even for a week, provide concrete damage to the fragile economy. In June 2010 alone, the National Association of Realtors estimates that almost 50,000 real estate closings were either significantly delayed or cancelled due to the month-long expiration of the NFIP.
Unfortunately, even despite the strong economic arguments for extending this program, the reality is that a long-term extension could be an uphill battle in this new Congress. The new Republican House is taking full aim at cutting the federal budget and the deficit, and President Obama is quickly adjusting to the new political landscape and proposing his own series of cost-cutting initiatives. With more than 100 new members of Congress, and with almost all of them both strongly advocating budget cuts and having little experience or familiarity with the flood program, the Big “I” is concerned that there may be some misguided attempts to eliminate or completely privatize the NFIP in the name of cutting the budget. (See sidebar for more information on the NFIP’s true impact on the federal budget.)
In fact, there is already one proposal that has been put forth in Congress that would completely eliminate the NFIP. H.R.435, the “National Flood Insurance Program Termination Act of 2011,” was recently introduced by Rep. Candice Miller (R-Mich.). This proposal would eliminate the entire NFIP and instead allow individual states to join together to form flood insurance compacts. The Big “I” is strongly opposed to this misguided bill and is already working to ensure it does not gain momentum in the House. Although the Big “I” is confident it can educate other members of Congress about the dangers of this proposal, its mere existence signals that a long-term extension of the NFIP before its expiration on Sept. 30 will be a hard fought battle in this new Congress.
Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.
A Look at the NFIP Numbers
Some critics of the National Flood Insurance Program (NFIP) say that it amounts to a tax-payer bailout for disaster assistance. However, in looking at the hard numbers of the program, with the exception of the truly historic losses of the 2005 hurricane season, the program has clearly been a good deal for taxpayers. Consider that:
- From 1986 (when Congress stopped making a separate appropriation for the NFIP) to 2005, the program had been completely self-supporting, covering all expenses and claim payments out of income from premiums and fees, and even generated a substantial profit for taxpayers.
- More than 250,000 NFIP claims were processed in 2005 because of Hurricanes Katrina, Rita and Wilma. The next highest number of claims ever was in 1995 in a major flood in Louisiana, and even that only resulted in approximately 30,000 claims.
- Hurricanes Katrina, Rita and Wilma caused almost $23 billion in NFIP losses, which was almost double the entire cumulative losses experienced by the program in its entire history prior to 2005.
- Congress approved $12 billion in emergency aid for the 2005 hurricane season specifically for non-NFIP insured flood losses. This aid went to homeowners who never paid a dollar in premium to the NFIP. The NFIP, meanwhile, is in debt approximately $18 billion from 2005 and continues to pay interest on this debt every year.
- Although the NFIP is required to pay interest on any debt it incurs, it is prohibited by law from keeping any profits it may generate in a reserve to help pay for future losses.
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