House Financial Services Committee Issues Report on Flood Insurance Market Parity, Modernization Act

Targeted News Service

WASHINGTON, April 30 -- The House Financial Services Committee issued a report (H.Rpt. 114-524) on legislation (H.R. 2901) to amend the Flood Disaster Protection Act of 1973 to require that certain buildings and personal property be covered by flood insurance. The report was advanced by Rep. Jeb Hensarling, R-Texas, on April 26.

Excerpts of the report follow:

PURPOSE AND SUMMARY

Introduced by Representative Ross on June 25, 2015, the 'Flood Insurance Market Parity and Modernization Act' amends the Flood Disaster Protection Act to clarify that flood insurance offered by a private carrier outside of the National Flood Insurance Program (NFIP) can satisfy the Act's mandatory purchase requirement. H.R. 2901 defines acceptable private flood insurance as a policy providing flood insurance coverage that is issued by an insurance company that is licensed, admitted, or otherwise approved to engage in the business of insurance in the state or jurisdiction in which the insured property is located. Under H.R. 2901, an acceptable private flood insurance policy may also be issued by an insurance company that is eligible as a non-admitted insurer to provide insurance in the state or jurisdiction where the property to be insured is located.

BACKGROUND AND NEED FOR LEGISLATION

In 1968, Congress created the NFIP, which is administered by the Federal Emergency Management Agency (FEMA) and provides flood insurance to policyholders across the country. Residents and business owners in participating communities across the United States and its territories may buy flood insurance through insurance agents and companies that participate as third-party administrators in the NFIP's Write Your Own (WYO) Program.

Property owners can purchase flood insurance through the NFIP only if their communities participate in the NFIP. To participate in the NFIP, communities must agree to abide by provisions intended to mitigate flood risks. For example, participating communities must adopt building codes that require new structures built in floodplains (which are high-risk areas) to be protected against flooding or to be elevated above the 100-year floodplain. FEMA calculates flood insurance premiums according to the average expected annual losses resulting from a natural disaster event that has a probability of occurring once every 100 years.

In 1973, Congress passed the Flood Disaster Protection Act, under which federally regulated or insured lenders must require the purchase of flood insurance on properties in high-risk flooding areas if the U.S. government backs the mortgage thereon. While the Act does not require that coverage be provided under the NFIP, its effect, over time, has been to discourage private sector participation in the flood insurance market and funnel virtually all flood risk through the NFIP.

Currently, the NFIP has approximately 5.3 million policies providing over $1.3 trillion in coverage in almost 22,000 communities in 56 jurisdictions that participate in the program. As of January 31, 2016, the NFIP had an outstanding debt of $23 billion borrowed from the U.S. Treasury, with $7.425 billion remaining of its total temporary $30.425 billion Treasury borrowing authority.

Currently, federal restrictions and confusing bureaucratic regulatory barriers have prevented the private flood insurance market from developing and, as a result, consumers have only one option for flood insurance: the NFIP. H.R. 2901 encourages the development of a robust private market by allowing insurers to work directly with their state commissioners to write policies that work for their customers' pricing and coverage needs. Choice and competition will lead to better products, pricing, and innovation and will give consumers another place to turn to besides the Federal government for this important safeguard.

HEARINGS

The Committee on Financial Services' Subcommittee on Housing and Insurance held a hearing examining matters relating to H.R. 2901 on January 13, 2016.

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on March 2, 2016, and ordered H.R. 2901 to be reported favorably to the House as amended by a recorded vote of 53 yeas to 0 nays (recorded vote no. FC-95), a quorum being present. Before the motion to report was offered, the Committee adopted an amendment in the nature of a substitute offered by Mr. Ross by voice vote.

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion to report legislation and amendments thereto. The sole recorded vote was on a motion by Chairman Hensarling to report the bill favorably to the House as amended. The motion was agreed to by a recorded vote of 53 yeas 0 nays (Record vote no. FC-95), a quorum being present.

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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee states that H.R. 2901 will promote a robust private flood insurance market by clarifying that insurance offered by a private carrier can satisfy the Flood Disaster Protection Act's mandatory insurance purchase requirement.

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House of Representatives, the following is the cost estimate provided by the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974:

U.S. Congress,

Congressional Budget Office,

Washington, DC, April 11, 2016.

Hon. JEB HENSARLING,

Chairman, Committee on Financial Services,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2901, the Flood Insurance Market Parity and Modernization Act.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Aurora Swanson.

Sincerely,

Keith Hall.

Enclosure.

H.R. 2901--Flood Insurance Market Parity and Modernization Act

H.R. 2901 would clarify that flood insurance provided by private firms satisfies the requirement that homeowners maintain flood coverage on mortgaged properties that are backed by a federal guarantee and located in a flood zone. The bill also would direct the Federal Emergency Management Agency (FEMA) to consider policy holders who drop a National Flood Insurance Program (NFIP) policy and then later return to NFIP as having continuous coverage if they can demonstrate that a flood insurance policy from a private firm was maintained throughout the interim period. Enacting the bill would affect direct spending; therefore, pay-as-you-go procedures apply. However, CBO estimates those effects would be insignificant. Enacting the legislation would not affect revenues.

Currently, private flood insurance options are not widely available. Based on information from FEMA and participants in private flood insurance markets, CBO expects that enacting the bill would have a very small effect on the decisions that consumers make regarding whether to carry a NFIP policy or to pursue private flood insurance. In addition, offsetting receipts from NFIP premiums would be available to be spent for flood claims, thus CBO estimates that any change in those collections would be offset by a similar change in direct spending.

CBO estimates that enacting the bill would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2027.

H.R. 2901 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would not affect the budgets of state, local, or tribal governments.

The CBO staff contact for this estimate is Aurora Swanson. The estimate was approved by H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis.

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office pursuant to section 423 of the Unfunded Mandates Reform Act.

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the Federal Advisory Committee Act were created by this legislation.

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of the section 102(b)(3) of the Congressional Accountability Act.

EARMARK IDENTIFICATION

H.R. 2901 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of rule XXI.

DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the Committee states that no provision of H.R. 2901 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111-139, or a program related to a program identified in the most recent Catalog of Federal Domestic Assistance.

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the Committee states that H.R. 2901 contains at least one directed rulemaking.

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

This Section cites H.R. 2901 as the 'Flood Insurance Market Parity and Modernization Act'.

Section 2. Private flood insurance

Section 2 updates current law to reinforce and strengthen requirements that flood insurance provided by private sector insurance carriers shall be accepted and considered similar to those polices offered by the National Flood Insurance Program (NFIP), provided certain conditions are met. Section 2 strikes and restates, in part, the current statute with updated language to reflect the recognition of flood policies offered by the NFIP and the private flood insurance market. Identical to current law, Section 2 restates the mandatory insurance requirement that any building, mobile home or personal property that would be financed by a federally-backed mortgage must have flood insurance if the property is located in an area designated as a special flood hazard.

This section clarifies that the coverage amount of flood insurance provided under either a Federal or private policy must be at least equal to the lesser of: the development or project cost of the building, mobile home, or personal property (less estimated land cost); the outstanding principal balance of the federally insured loan secured by the property; or the maximum limit of Federal flood insurance coverage made available with respect to the particular type of property. If the financial assistance provided is in the form of a loan or an insurance or guaranty of a loan, the amount of required flood insurance need not exceed the outstanding principal balance of the loan and need not be required beyond the term of the loan.

Consistent with current law, Federal banking regulators are required to instruct, by regulation, that regulated institutions not make loans secured by real property located in flood zones unless the property is covered by 'flood insurance' (Federal or private). Moreover, H.R. 2901 clarifies that each Federal banking regulator must require regulated financial institutions to accept Federal (National Flood Insurance Program) and private flood insurance as satisfaction of the flood insurance coverage requirement.

H.R. 2901 updates current law to require the Government Sponsored Enterprises (GSEs), known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, to require flood insurance for any real estate or mobile home located in a special flood hazard area and purchased or guaranteed by such entity. This section would also add a new requirement that these GSEs accept Federal (National Flood Insurance Program) and private flood insurance as satisfaction of the mandatory flood insurance coverage requirement, provided that the flood insurance coverage meets the requirements under H.R. 2901 and any requirements established by the Federal National Mortgage Association or the Federal Home Loan Corporation relating to the financial strength of such private insurance companies. Such requirements developed by the GSEs shall not affect or conflict with any state law, regulation, or procedure concerning the regulation of the business of insurance.

H.R. 2901 defines flood insurance as either 'Federal flood insurance' or 'private flood insurance.' 'Federal flood insurance' is defined as a policy available through the NFIP. 'Private flood insurance' is defined as a flood insurance policy that is issued by a state-licensed insurer, or a non-admitted insurer that is not disapproved by the state as a surplus lines insurer, and that complies with the laws and regulations of the state in which the insured property is located. The term 'State' means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, and American Samoa.

Finally, Section 2 clarifies that the Administrator of the Federal Emergency Management Agency shall consider any period during which a property was continuously covered by private flood insurance to be a period of continuous coverage.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

The full text of the report is found at: http://thomas.loc.gov/cgi-bin/cpquery/36?cp114:temp/~cp114susc7&sid=cp114susc7&item=36&sel=TOCLIST&l_f=501&l_file=list/cp114ch.lst&l_b=451&l_file=list/cp114ch.lst&report=hr524.114&hd_count=50&&&l_t=608&&&.

Myron Struck, editor, Targeted News Service, Springfield, Va., 703/304-1897; [email protected]; http://www.targetednews.com

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