National Flood Insurance Program

Position

  • ICBA strongly supports the timely, long-term reauthorization of the NFIP, which continues to provide critical support to community banks by providing affordable, reliable flood insurance for both residential and commercial properties securing both consumer and business loans.
  • Flood insurance must be affordable and reasonably available to all homeowners and commercial policyholders.
  • The program must be managed in a fiscally responsible and actuarily sound way.
  • ICBA opposes any exemption of commercial properties from the mandatory purchase requirement.
  • ICBA supports efforts to increase the role of private insurers in the flood insurance market.
  • Banks must not be required to review and approve private flood insurance policies and must not be held liable for policies that are not adequate.
  • The community bank escrow exemption must be maintained.
  • FEMA should coordinate with FHFA, FDIC, OCC, Federal Reserve and NCUA to address concerns regarding financial institution compliance with the mandatory purchase requirement.
  • ICBA opposes increasing the civil monetary penalties for noncompliance with the mandatory purchase requirement until all maps are accurate and up-to-date.
  • ICBA supports increasing the size of the risk pool to provide more risk diversity and increase premium revenue to the program.

Background

Congress created the National Flood Insurance Program (NFIP) in 1968 to help property owners protect themselves financially from the risk of flooding at a time when flood insurance was not readily available in the private market. The NFIP sells flood insurance to homeowners, renters, and business owners, at subsidized rates, in participating communities that agree to adopt and enforce ordinances that meet or exceed Federal Emergency Management Agency (FEMA) requirements to reduce the risk of flooding. Homes and businesses located in Special Flood Hazard Areas and secured by federally-backed loans are required to maintain flood insurance on the property. This mandate is enforced by the lenders and their federal regulators.

Over the past 12 years, devastating hurricanes have driven the National Flood Insurance Program into insolvency. The NFIP currently has a deficit of $30 billion with no prospect of paying off its debt. Recognizing that changes were needed, Congress reauthorized the NFIP in 2012, via the Biggert-Waters Flood Insurance Reform Act, making significant changes to the premium structure. 

Shortly after its passage into law, concerns surfaced that Biggert-Waters would cause certain properties to be subject to skyrocketing premium increases, which would have been triggered by a new flood map or by a transfer of ownership. ICBA supported the 2014 Homeowner Flood Insurance Affordability Act, which amended Biggert-Waters in order to provide immediate relief for policyholders.

The NFIP was set to expire in September 2017, but Congress passed a series of short-term extensions and forgave $16B of the program’s $30 debt. The current extension expires February 8.

While we still expect reauthorization of the NFIP, it is unclear for how long and what, if any, reforms Congress will seek. Congress needs to strike a delicate balance between setting the program on sound financial footing and making sure that rates are affordable for the homeowners and businesses who depend on flood insurance coverage.

Many Members of Congress would like to shrink the program and have more properties insured in the private market. ICBA is supportive of increased private market participation – believing that consumers will only leave the NFIP to obtain private policies that are cheaper and better - as long as community banks are not responsible for certifying that private policies satisfy mandatory purchase requirements and consumers are allowed to return to the program without losing their grandfathered status. ICBA also opposes efforts to remove the mandatory purchase requirement for commercial properties, believing this will put community banks at a disadvantage to regional and national banks when competing for loans in flood zones.

ICBA will advocate for community bank priorities in NFIP reform, and above all, ensure that we avoid a lapse in the program that would disrupt the market and delay loan closures.

Staff Contacts: Ron Haynie and Amy Roberti