Congress to mull long-term fix for federal flood insurance

Congress will formally mull a long-term solution for the embattled National Flood Insurance Program.

Sen. Tim Scott, R-S.C., chairman of the Senate Banking Committee, announced a working group to "identify and lead solutions" for a long-term reauthorization of the program. The NFIP, which as of 2022 had over 4.7 million policies in force, is constantly under threat of expiring, having been extended dozens of times alongside the nation's budget. 

Lenders are responsible for requiring borrowers with government-sponsored mortgages in designated Special Flood Hazard Areas, defined as areas with a 1% annual chance of flooding, to obtain the coverage. Homeowners have the option of obtaining flood policies with a private insurer in a smaller marketplace. 

If the NFIP were to end, existing policies would run through the end of their term. Industry stakeholders have cautioned that origination activity would be negatively impacted if the NFIP expired. In 2010, when the program lapsed for a month, the market reportedly lost around 1,400 closings a day.

The new committee group, Addressing America's National Flood Insurance Program, will be led by Sen. John Kennedy, R-L.A., and Sen. Mike Rounds, R-S.D. Kennedy has long been a proponent of NFIP reform, while Rounds is a veteran of the insurance industry. 

"Currently, the National Flood Insurance Program is not working for the Louisianians or Americans who need it," said Kennedy in a press release. "That makes it impossible to protect their biggest assets — their homes."

Senators said reforms would ensure long-term fiscal sustainability for the program. The announcement comes after President Trump publicly considered abolishing the NFIP overseer, the Federal Emergency Management Agency, in favor of providing federal aid directly to states. 

The NFIP currently has $3.4 billion available to pay flood claims, according to a non-partisan Congressional Research Service analysis this month. It owes $20.5 billion to the U.S. Treasury, debts amassed since Hurricane Katrina in 2005, and can borrow another $9.9 billion from the government. 

The program also transfers risk via reinsurance and catastrophe bonds. It's been reauthorized 32 times since the end of fiscal year 2017, and is currently set to expire with the nation's budget on March 14, 2025. 

The average premium for NFIP policyholders was $935 as of September 2022, according to FEMA's most recent estimate. Premiums have allegedly skyrocketed since FEMA implemented a new risk rating formula, a mechanism under fire in a long-running lawsuit.

The Consumer Financial Protection Bureau and First Street Foundation earlier this month also suggested the mortgage industry is underestimating the flood risk to its portfolios. In an analysis of data from the Southeast and Central Southeast, their report said there are at least 440,000 more homes at risk than what the NFIP's data shows.