The National Flood Insurance Program (NFIP) is going to expire at the end of September unless Congress is able to reauthorize or extend the program. Both the House and the Senate are looking for ways to reauthorize and reform a program that is almost $25B in debt and could be much more than that in the near future. There are numerous issues and problems with the program, but there are some positive reforms that Congress is looking to put into the reauthorization of the NFIP that would make it a much better and stable program for the future. Many of the issues affect residential properties, but there are some proposed changes that will impact commercial properties.
What the House Wants
The House wants to reauthorize the program for five years and reform several areas. Most importantly they want to clarify that private insurance policies satisfy the mandatory insurance requirement and repeal the mandatory flood coverage requirement for commercial and multi-family properties located in hazardous flood zones. This is very important if you or your company has bank loan covenants that state you must buy NFIP policies. Many times, your all-risk property policy provides adequate limits. But due to the current legislation, the bank mandates that you also buy an NFIP policy. This adds unnecessary costs to your insurance program.
What the Senate Wants
The Senate wants to reauthorize the program for six years (another bill is for 10 years) and reform multiple areas as well. Both the House and Senate support ways to make the program more sustainable, affordable and efficient. Most importantly is a push towards greater privatization of the flood insurance marketplace.
However, now that Congress has reconvened, there will be many more pressing issues than the NFIP reauthorization. Reform may get put on the back burner, as a final bill doesn’t exist yet. If this happens, it is likely that the program will be extended for a few months until bipartisan reauthorization is reached. This will continue the uncertainty surrounding the future of the NFIP. Due to losses from Hurricanes Harvey and Irma, there may be a push to reauthorize the program before the program expires.
What Happens if the NFIP Lapses?
The worst case scenario is that the program lapses. Without a reauthorization by September 30, claims will still be paid on existing policies, but only from existing funds on hand as additional borrowing will not be possible. It will also not be possible to renew expiring policies or issue new ones. If your bank originally required you to buy an NFIP policy, they may continue to require you to purchase similar insurance. If you are not able to obtain it in the open marketplace, your bank(s) may force-place coverage (the bank buys the coverage and bills you) which is usually more expensive than expiring costs.
It’s clear that Congress is not in agreement about how to handle the National Flood Insurance Program, and the looming deadline will only be exacerbated by mounting losses from recent hurricanes. Regardless of the direction that Congress takes, the National Flood Insurance Program will likely be very different in the not-too-distant future. Please reach out to your Hylant broker today or contact our property and marine experts to discuss how we can help you understand and manage your flood exposures.
By Ryan King