The Reauthorization of the National Flood Insurance Program: FEMA’s Perspective (EventID=115836)

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On Friday, April 28, 2023, at 9:00 a.m. (ET) Housing and Insurance Subcommittee Chairman Congressman Davidson and Ranking Member Congressman Cleaver will host a hearing entitled, “The Reauthorization of the National Flood Insurance Program: FEMA’s Perspective.”

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Witnesses for this one-panel hearing will be:

• Mr. David Maurstad, Assistant Administrator, Federal Insurance Directorate, Federal Emergency Management Agency (FEMA)

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Background: The Need for Flood Insurance

Floods are the most common, most expensive, and most deadly natural disaster that communities across the United States experience. Reports reveal approximately 90 percent of all U.S. natural disasters also involve flooding from any number of sources, including inland flooding, flash floods, and flooding from seasonal storms. While such events have long been a concern, recent experiences have shown that flooding has become both more frequent and severe. The Federal Emergency Management Agency’s (FEMA) 50+ year old National Flood Insurance Program (NFIP), which is by far the nation’s leading provider of flood insurance coverage, has experienced two of its top five, four of its top ten, and ten of its top 20 costliest flood events all in the last decade alone. Previously, the NFIP dealt with only two $1+ billion flood events prior to its most costly flood, which was Hurricane Katrina in 2005. Since then, the NFIP has experienced eight $1+ billion flood events.

The damage from flooding can be extremely costly to both human safety and property. The National Weather Service has reported an average of 98 deaths per year over the last decade due to flooding, including nearly 150 fatalities in 2021 alone. Additionally, according to FEMA, just one inch of flood water in a home can cause up to $25,000 in damage. In 2019, the average NFIP flood claim payout was over $32,000. As a result, the overall economic cost of flood damage in the U.S. was estimated to be approximately $17 billion per year from 2010-2018, more than quadruple from the $4 billion per year cost in the 1980s.

Background: The NFIP

The NFIP was created by Congress in 1968. It is by far the nation’s leading provider of flood insurance coverage, selling roughly 93 percent of all residential flood coverage in the country. Homeowners and businesses can purchase government-backed flood insurance through the NFIP if they are in one of 22,000 participating communities that have agreed to implement FEMA’s local floodplain management regulations and building codes. Under Section 102 of the Flood Disaster Protection Act of 1973, homeowners who have a federally-backed mortgage in certain high-risk areas with a 1 percent or higher chance of annual flooding (“Special Flood Hazard Areas”) are required to purchase flood insurance. Properties that are required to purchase flood insurance comprise just over half of all NFIP policies, with the remaining policies purchased voluntarily in areas with lower risks.

The NFIP currently provides coverage to roughly 4.7 million policyholders (4.5 million of which are residential policies) with over $1.3 trillion in total insurance coverage-in-force. Properties insured by the NFIP include single family homes (roughly 70 percent of policies), condos and multi-family buildings (roughly 20 percent), and other non-residential buildings like businesses, churches, and farms. In total, the NFIP collects approximately $4.7 billion in annual combined premiums and fees from its policyholders. In addition to the revenue it collects, Congress has statutorily authorized the NFIP to “temporarily” borrow up to $30.425 billion from taxpayers, which must be repaid with interest. In 2017, Congress canceled $16 billion of NFIP debt after experiencing new losses from Hurricanes Harvey, Maria, and Irma. However, currently, the NFIP still owes taxpayers over $20.5 billion in debt and maintains just under $10 billion in remaining borrowing authority. It also pays approximately $400 million to the U.S. Treasury in interest expenses annually.

Since its creation, the NFIP has been subject to periodic congressional reauthorizations every few years to review its operations and stability. For example, reauthorizations were enacted in 1990, 1994, 2004, and most recently in 2012. The NFIP requires congressional authorization to have the legal authority to renew existing or enter into new flood insurance contracts with policyholders, actions which cannot be undertaken during a lapse in authorization (though the program always retains the ability to…

Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=410332