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Senate Hearing Addresses Flood Insurance

The U.S. Senate Committee on Banking , Housing, and Urban Affairs recently held the hearing "Reauthorization of the National Flood Insurance Program, Part II," discussing the long-term reauthorization of the National Flood Insurance Program (NFIP).

The hearing featured presentations from U.S. Sen. Sherrod Brown, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs; Ranking Member Pat Toomey of the U.S. Senate Committee on Banking, Housing, and Urban Affairs; and David I. Maurstad, Deputy Associate Administrator from the Federal Insurance and Mitigation Administration, Federal Emergency Management Agency (FEMA).

The NFIP, administered by FEMA’s Federal Insurance and Mitigation Administration (FIMA), was designed to decrease the impact of future floods, reduce the costs and adverse consequences of flooding, reduce the need for and cost of disaster assistance after floods, and preserve and restore the natural and beneficial values of floodplains. FEMA’s role in the process is to address the challenges of flooding by identifying areas where flood hazards are greatest, by implementing minimum standards for communities to minimize risk, making flood insurance available in participating communities, and by providing access to flood mitigation grants.

The NFIP provides more than $1.3 trillion in coverage to more than five million homes and businesses in more than 22,000 communities nationwide.

“Flooding is the most common and most costly natural disaster facing families, businesses, and communities across the country,” said Sen. Brown. “We hear from our constituents how it takes families’ homes and memories, it wrecks their finances, it shutters small businesses, and it destroys communities’ infrastructure. Disasters also often fall hardest on low-income and families of color, and communities that have fewer resources to prepare for and respond to them. And no matter where you live, everyone pays for the financial fallout from floods, as the country spends tax dollars to help families and communities recover.”

On April 1, 2021, FEMA formally released Risk Rating 2.0: Equity in Action, a new pricing methodology with equitable pricing for each property’s unique flood risk.

The NFIP’s rating methodology had not been updated in more than 40 years, and through Risk Rating 2.0, a more equitable and risk informed NFIP could be established. Risk Rating 2.0 builds on years of investment in flood hazard information, by incorporating private sector data sets, catastrophe models, and evolving actuarial science, according to Maurstad in his testimony.

“Risk Rating 2.0 will change the landscape of flood insurance, enhance risk communication, and enable better floodplain management—ultimately resulting in greater resilience,” said Maurstad. “Risk Rating 2.0 will help put the NFIP on a financially sound path; and will help disaster survivors recover more quickly after floods.”

FEMA's updated Risk Rating 2.0 raised the cost of flood insurance for more than 3.8 million homeowners. However, approximately 192,000 of these policyholders, or 4%, experienced the upper-tier price surge, leaving 1.2 million—or 23% of flood insurance policies—with immediate cost reductions.

The states where residents are most impacted include Hawaii, where 87% or property owners will see increased premiums; Texas (86%); Mississippi (84%); West Virginia (83%); Florida (80%); and Louisiana (80%). More than 10,000 homeowners each in Florida, Texas, Louisiana, New Jersey, and New York will face the highest price increases. In Alaska, more than eight in 10 policies will increase. But at least half of the policies in the District of Columbia, Maryland, Michigan, and Utah will have lower rates as a result of Risk Rating 2.0.

Sen. Toomey said, “I recognize that we cannot fix NFIP overnight, but I hope that we use re-authorization as an opportunity to move it in the right direction.”

Sen. Brown also noted the changes in climate are putting more and more at risk, as federal agencies need to improve flood mapping and mitigation in the face of such climate change.

“As the climate continues to change, we can only expect flooding to get worse, and become even more common,” said Sen. Brown. “Spring snow melt, increasingly powerful storms, ‘sunny day’ flooding in coastal communities, and extreme rainfall can overwhelm our nation’s aging infrastructure and the land’s capacity to absorb water. Reversing the trajectory of climate change is going to be a long-term effort. While we work on that, we also need to help our families and communities become more resilient to the flooding we face now and in the coming decades. And whenever possible, we need to prevent that flooding altogether.”

Click here to access the full Senate Banking Committee Hearing “Reauthorization of the National Flood Insurance Program, Part II.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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