[House Report 115-221]
[From the U.S. Government Publishing Office]
115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-221
======================================================================
TO REQUIRE THE USE OF REPLACEMENT COST VALUE IN DETERMINING THE PREMIUM
RATES FOR FLOOD INSURANCE COVERAGE UNDER THE NATIONAL FLOOD INSURANCE
ACT, AND FOR OTHER PURPOSES
_______
July 14, 2017.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 2565]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 2565) to require the use of replacement cost
value in determining the premium rates for flood insurance
coverage under the National Flood Insurance Act, and for other
purposes, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. USE OF REPLACEMENT COST IN DETERMINING PREMIUM RATES.
(a) Study of Risk Rating Redesign Flood Insurance Premium Rating
Options.--
(1) Study.--The Administrator of the Federal Emergency
Management Agency shall conduct a study to--
(A) evaluate insurance industry best practices for
risk rating and classification, including practices
related to replacement cost value in premium rate
estimations;
(B) assess options, methods, and strategies for
including replacement cost value in the Administrator's
estimates under section 1307(a)(1) of the National
Flood Insurance Act of 1968 (42 U.S.C. 4014(a)(1));
(C) provide recommendations for including replacement
cost value in the estimate of the risk premium rates
for flood insurance under such section 1307(a)(1);
(D) identify an appropriate methodology to
incorporate replacement cost value into the
Administrator's estimates under such section
1307(a)(1);
(E) develop a feasible implementation plan and
projected timeline for including replacement cost value
in the estimates of risk premium rates for flood
insurance made available under the National Flood
Insurance Program.
(2) Report.--
(A) Requirement.--Not later than the expiration of
the 12-month period beginning on the date of the
enactment of this Act, the Administrator shall submit
to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate a report that contains
the results and conclusions of the study required under
paragraph (1).
(B) Contents.--The report submitted under
subparagraph (A) shall include--
(i) an analysis of the recommendations
resulting from the study under paragraph (1)
and any potential impacts on the National Flood
Insurance Program, including cost
considerations;
(ii) a description of any actions taken by
the Administrator to implement the study
recommendations; and
(iii) a description of any study
recommendations that have been deferred or not
acted upon, together with a statement
explaining the reasons for such deferral or
inaction.
(b) Use of Replacement Cost Value in Premium Rates; Implementation.--
(1) Estimated rates.--Paragraph (1) of section 1307(a) of the
National Flood Insurance Act of 1968 (42 U.S.C. 4014(a)(1)) is
amended, in the matter preceding subparagraph (A), by inserting
after ``flood insurance'' the following: ``, which shall
incorporate replacement cost value, and''.
(2) Chargeable rates.--Subsection (b) of section 1308 of the
National Flood Insurance Act of 1968 (42 U.S.C. 4015(b)) is
amended, in the matter preceding paragraph (1), by inserting
after ``Such rates'' the following: ``shall incorporate
replacement cost value and''.
(3) Effective date.--The amendments under paragraphs (1) and
(2) of this subsection shall be made upon the expiration of the
12-month period beginning on the date of the enactment of this
Act.
(4) Applicability and phase-in.--The Administrator of the
Federal Emergency Management Agency shall apply the amendments
under paragraphs (1) and (2) to flood insurance coverage made
available under the National Flood Insurance Act of 1968 for
properties located in various geographic regions in the United
States such that--
(A) over the period beginning upon the expiration of
the period referred to in paragraph (3) of this
subsection and ending on December 31, 2020, the
requirement under such amendments shall be gradually
phased in geographically throughout the United States
as sufficient information for such implementation
becomes available; and
(B) after the expiration of such period referred to
in subparagraph (A), such amendments shall apply to all
flood insurance coverage made available under the
National Flood Insurance Act of 1968.
Purpose and Summary
Introduced by Representative Blaine Luetkemeyer on May 19,
2017, H.R. 2565 would require the use of replacement cost value
in determining the premium rates for flood insurance coverage
under the National Flood Insurance Act, and for other purposes,
would require the Federal Emergency Management Agency (FEMA) to
conduct a study on the feasibility of incorporating the actual
replacement cost value for each National Flood Insurance
Program covered property. Additionally, H.R. 2565 amends the
National Flood Insurance Act of 1968 to require FEMA to use
actual replacement cost values as part of the determination of
chargeable risk premiums.
Background and Need for Legislation
Floods are among the most frequently occurring and costly
natural disasters. Most declarations of federal disasters by
the Federal Emergency Management Agency (FEMA) are related to
flooding. Yet despite the frequency and severity of losses that
result from flooding, the private insurance market generally
did not provide insurance for flooding; when it did, insurance
for flood-related damage can be expensive because the
properties most at-risk tend to be highly concentrated
geographically and the potential risk of economic losses is
extremely high.
To supplement the availability of flood insurance in the
private market, Congress, in 1968, created the National Flood
Insurance Program (NFIP), which is administered by FEMA and
provides flood insurance to approximately 5.1 million
policyholders across the country. In exchange for premiums paid
by policyholders, NFIP makes federally backed flood insurance
available to homeowners and other property owners (for example,
businesses, churches, and farmers) in these communities.
Homeowners with mortgages held by federally regulated
lenders on property in participating communities identified by
FEMA to be in Special Flood Hazard Areas are required to
purchase flood insurance (mandatory purchase requirement). NFIP
coverage limits vary by program (regular or emergency) and
property type (for example, residential or nonresidential). In
NFIP's regular program, the maximum coverage limits for
residential policyholders are $250,000 for buildings and
$100,000 for contents. For commercial policyholders (that is,
those with policies for nonresidential properties), the maximum
coverage limit is $500,000 per building and $500,000 for
contents owned by the building owner. There is additional
coverage for contents owned by the tenants.
Residents and business owners in over 22,000 participating
communities across the United States and its territories are
able to buy NFIP flood insurance policies through insurance
agents and companies that participate as third-party
administrators in the ``Write Your Own'' (WYO) program. The WYO
program allows private insurance carriers to issue and service
government underwritten and taxpayer backed NFIP policies with
no private financial liability from the insurer. Insurance
companies that participate in the WYO program receive an
expense allowance for policies they write and the claims they
process. In addition, their agents earn a commission for the
policies they sell. The federal government, however, retains
responsibility for managing the risk and paying claims, as well
as covering any litigation costs should a WYO insurer be sued
in court.
Property owners can purchase flood insurance through the
NFIP only if their communities participate in the NFIP. To
participate in the NFIP, a community must agree to abide by
certain statutory provisions intended to mitigate the risk of
flooding, such as building codes that require new structures
built in floodplains (high-risk areas) to be protected against
flooding or to be elevated above the 100-year floodplain.
As of June 5, 2017, the NFIP has an outstanding debt of
$24.6 billion borrowed from taxpayers, with roughly $1.1
billion available cash-on-hand and $5.825 billion remaining of
its total temporary $30.425 billion Treasury borrowing
authority. The NFIP's debt results primarily from its borrowing
to pay claims relating to the Gulf Coast hurricanes in 2005 and
Superstorm Sandy in October 2012. This borrowing stems from a
structural imbalance in how the NFIP measures and prices for
risk, resulting in only 46 percent of premium dollars collected
in 2016 being available for the payments of claims. With such a
low portion of premiums available to pay claims, the pressure
on the NFIP to borrow from taxpayers increases. The NFIP's
structural budget crisis has required periodic legislation to
increase its borrowing authority, the most recent example of
which occurred in January 2013 when Congress increased the
NFIP's borrowing authority by $9.7 billion--from $20.725
billion to its current $30.425 billion level.
H.R. 2565 would require FEMA to conduct a study to evaluate
insurance industry best practices for risk rating and
classification, including practices related to replacement cost
value in premium rate estimation. Upon submission of the study
to Congress, the bill requires FEMA to incorporate up-to-date
replacement cost values, by structure, when calculating annual
chargeable premium rates, as opposed to the current practice
that relied upon a national average, over a 1-3 year period.
In FEMA's documents that outline the methods used to
develop flood insurance premiums, the agency states that it
does not consider actual replacement costs when it determines
NFIP premiums. Instead, the NFIP uses fixed national averages
for replacement costs when it determines customer premiums. By
using fixed replacement values based on historical averages,
the NFIP's current premium construction process guarantees that
the lower-income policyholders will subsidize wealthier
homeowners, because policyholders below the average would pay
up to that national average and policyholders above the average
(higher income policyholders) would pay down to that national
average.
H.R. 2565 fixes this inequity and provides relief to lower-
income policyholders by requiring the NFIP to incorporate up-
to-date replacement cost values, by structure, when calculating
annual chargeable premium rates, as opposed to the current
practice that relies upon a national average.
Hearings
The Committee on Financial Services' Subcommittee on
Housing & Insurance held two hearings examining matters
relating to H.R. 2565 on March 9, 2017 and March 16, 2017. The
Committee on Financial Services held a hearing examining
matters relating to H.R. 2565 on June 7, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
June 15, 2017 to consider H.R. 2565. The Committee ordered H.R.
2565 to be reported favorably to the House, as amended, by a
recorded vote of 34 ayes and 25 nays (Recorded vote no. FC-66),
a quorum being present. Before the motion to report was
offered, the Committee adopted an amendment offered by Mr.
Luetkemeyer, by voice vote, a quorum being present.
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, as amended, favorably to the House. The motion
was agreed to by a recorded vote of 34 ayes and 25 nays
(Recorded vote no. FC-66), a quorum being present.
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. 2565
will protect taxpayers and policyholders by incorporating up-
to-date replacement cost values, by structure, when calculating
annual chargeable premium rates.
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, July 14, 2017.
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. 2565, a bill to
require the use of replacement cost value in determining the
premium rates for flood insurance coverage under the National
Flood Insurance Act, and for other purposes.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Robert Reese.
Sincerely,
Mark P. Hadley
(For Keith Hall).
Enclosure.
H.R. 2565--A bill to require the use of replacement cost value in
determining the premium rates for flood insurance coverage
under the National Flood Insurance Act, and for other purposes
Summary: H.R. 2565 would direct the Federal Emergency
Management Agency (FEMA) to analyze different methods and
develop a plan for incorporating the actual replacement cost of
each structure insured by the National Flood Insurance Program
(NFIP) into the premium charged to each property owner. The
bill also would require FEMA to submit the plan and an analysis
of any alternative plans it considered to the Congress. FEMA
would then be required to phase in its plan over a three-year
period.
CBO estimates that implementing H.R. 2565 would cost $15
million over the 2018-2022 period, assuming appropriation of
the necessary amounts. CBO estimates that enacting the
legislation would affect direct spending; therefore, pay-as-
you-go procedures apply. However, those effects would not be
significant. Enacting the bill would not affect revenues.
CBO estimates that enacting H.R. 2565 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2028.
H.R. 2565 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary effect of H.R. 2565 is shown in the following table.
The costs of this legislation fall within budget function 450
(community and regional development).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------
2017 2018 2019 2020 2021 2022 2017-2022
----------------------------------------------------------------------------------------------------------------
INCREASES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level........................ 0 3 3 3 3 3 15
Estimated Outlays.................................... 0 3 3 3 3 3 15
----------------------------------------------------------------------------------------------------------------
Basis of estimate: For this estimate, CBO assumes that H.R.
2565 will be enacted near the end of fiscal year 2017 and that
the necessary amounts will be appropriated each year. Estimated
outlays are based on historical spending patterns for similar
programs.
NFIP policies are available to insure up to $250,000 of the
value of residential properties or up to $500,000 of the value
of nonresidential properties. In general, properties with a
greater replacement value incur more costly flood claims than
those with smaller replacement values--even when those
properties face the same risk of flooding. However, properties
that face the same flood risk are charged the same premium even
if the replacement value of those structures is significantly
different. Under current law, FEMA accounts for the different
replacement value of structures with NFIP policies by
incorporating an under-insurance adjustment factor. That
adjustment factor is applied to all NFIP premiums such that
premiums are sufficient to cover expected claims.
Under H.R. 2565, FEMA would be required to develop and
implement a plan to incorporate the replacement value of each
individual insured structure into the premium charged to the
owner of that structure. That would change the methodology for
determining the adjustment factor for replacement values:
instead of using an average factor to adjust all policies, FEMA
would be required to calculate and use a specific adjustment
factor for each individual policy based on its coverage
premiums and the replacement value of the individual structure.
CBO expects the changes required under H.R. 2565 would not
significantly alter the total amount of premiums collected from
NFIP policyholders in any year. Rather, the changes would
adjust some policyholders' premiums upward and other
policyholders' premiums downward such that the total premium
collections would remain about the same as they otherwise would
be under current law.
According to FEMA, the agency is already preparing to
determine how to incorporate replacement cost value into
premiums as a part of a larger effort to redesign premiums for
the NFIP. Based on an analysis of information from by FEMA, CBO
estimates that implementing H.R. 2565 would cost $15 million
over the 2018-2022 period to obtain additional data from
policyholders to complete the redesign of NFIP premiums and
incorporate replacement values for each policy.
Pay-as-you-go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. Because using a specific under-insurance adjustment
factor for each individual NFIP policy rather than an average
adjustment factor for all policies would not affect the total
NFIP premiums collected, CBO expects that enacting H.R. 2565
would have no significant effect on direct spending in any
year. Enacting the bill would not affect revenues.
Increase in long-term direct spending and deficits: CBO
estimates that enacting H.R. 2565 would not increase net direct
spending or on-budget deficits in any of the four consecutive
10-year periods beginning in 2028.
Intergovernmental and private-sector impact: H.R. 2565
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal costs: Robert Reese; Impact
on state, local, and tribal governments: Rachel Austin; Impact
on the private sector: Logan Smith.
Estimate 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. 2565 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(c)(5) of rule XIII, the Committee
states that no provision of H.R. 2565 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, 115th Cong. (2017),
the Committee states that H.R. 2565 contains no directed
rulemaking.
Section-by-Section Analysis of the Legislation
Sec. 1 Use of replacement cost in determining premium rates
The Administrator shall conduct a study to evaluate
insurance industry best practices for risk rating and
classification, including practices related to replacement cost
value in premium rate estimations and developing a feasible
implementation plan and projected timeline for including
replacement costs value in the estimates of risk premium rates
for flood insurance made available under the NFIP. Effective
twelve months after the bill's enactment, the Administrator
shall submit to Congress a report that contains the results and
conclusions of the study. The report shall include an analysis
of the recommendations resulting from the study and any
potential impacts on the NFIP; a description of any actions
taken by the Administrator to implement the study
recommendations; and a description of any study recommendations
that have been deferred or not acted upon. This section also
requires the Administrator to incorporate up-to-date
replacement cost values, by structure, when calculating annual
chargeable premium rates, as opposed to the current practice
that relied upon a national average, over a 1-3 year period.
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 (new matter is
printed in italics and existing law in which no change is
proposed is shown in roman):
NATIONAL FLOOD INSURANCE ACT OF 1968
* * * * * * *
TITLE XIII--NATIONAL FLOOD INSURANCE
* * * * * * *
CHAPTER I--THE NATIONAL FLOOD INSURANCE PROGRAM
* * * * * * *
estimates of premium rates
Sec. 1307. (a) The Administrator is authorized to undertake
and carry out such studies and investigations and receive or
exchange such information as may be necessary to estimate, and
shall from time to time estimate, on an area, subdivision, or
other appropriate basis--
(1) the risk premium rates for flood insurance, which
shall incorporate replacement cost value, and which--
(A) based on consideration of--
(i) the risk involved and accepted
actuarial principles; and
(ii) the flood mitigation activities
that an owner or lessee has undertaken
on a property, including differences in
the risk involved due to land use
measures, floodproofing, flood
forecasting, and similar measures, and
(B) including--
(i) the applicable operating costs
and allowances set forth in the
schedules prescribed under section 1311
and reflected in such rates,
(ii) any administrative expenses (or
portion of such expenses) of carrying
out the flood insurance program which,
in his discretion, should properly be
reflected in such rates,
(iii) any remaining administrative
expenses incurred in carrying out the
flood insurance and floodplain
management programs (including the
costs of mapping activities under
section 1360) not included under clause
(ii), which shall be recovered by a fee
charged to policyholders and such fee
shall not be subject to any agents'
commissions, company expense
allowances, or State or local premium
taxes, and
(iv) all costs, as prescribed by
principles and standards of practice in
ratemaking adopted by the American
Academy of Actuaries and the Casualty
Actuarial Society, including--
(I) an estimate of the
expected value of future costs,
(II) all costs associated
with the transfer of risk, and
(III) the costs associated
with an individual risk
transfer with respect to risk
classes, as defined by the
Administrator,
would be required in order to make such insurance
available on an actuarial basis for any types and
classes of properties for which insurance coverage is
available under section 1305(a) (or is recommended to
the Congress under section 1305(b));
(2) the rates, if less than the rates estimated under
paragraph (1), which would be reasonable, would
encourage prospective insureds to purchase flood
insurance, and would be consistent with the purposes of
this title, and which, together with a fee charged to
policyholders that shall not be not subject to any
agents' commission, company expenses allowances, or
State or local premium taxes, shall include any
administrative expenses incurred in carrying out the
flood insurance and floodplain management programs
(including the costs of mapping activities under
section 1360), except that the Administrator shall not
estimate rates under this paragraph for--
(A) any residential property which is not the
primary residence of an individual;
(B) any severe repetitive loss property;
(C) any property that has incurred flood-
related damage in which the cumulative amounts
of payments under this title equaled or
exceeded the fair market value of such
property;
(D) any business property; or
(E) any property which on or after the date
of enactment of the Biggert-Waters Flood
Insurance Reform Act of 2012 has experienced or
sustained--
(i) substantial damage exceeding 50
percent of the fair market value of
such property; or
(ii) substantial improvement
exceeding 50 percent of the fair market
value of such property; and
(3) the extent, if any, to which federally assisted
or other flood protection measures initiated after the
date of the enactment of this title affect such rates.
(b) In carrying out subsection (a), the Administrator shall,
to the maximum extent feasible and on a reimbursable basis,
utilize the services of the Department of the Army, the
Department of the Interior, The Department of Agriculture, the
Department of Commerce, and the Tennessee Valley Authority,
and, as appropriate, other Federal departments or agencies, and
for such purposes may enter into agreements or other
appropriate arrangements with any persons.
(c) The Administrator shall give priority to conducting
studies and investigations and making estimates under this
section in those States or areas (or subdivisions thereof)
which he has determined have evidenced a positive interest in
securing flood insurance coverage under the flood insurance
program.
(d) Notwithstanding any other provision of law, any structure
existing on the date of enactment of the Flood Disaster
Protection Act of 1973 and located within Avoyelles,
Evangeline, Rapides, or Saint Landry Parish in the State of
Louisiana, which the Administrator determines is subject to
additional flood hazards as a result of the construction or
operation of the Atchafalaya Basin Levee System, shall be
eligible for flood insurance under this title (if and to the
extent it is eligible for such insurance under the other
provisions of this title) at premium rates that shall not
exceed those which would be applicable if such additional
hazards did not exist.
(e) Notwithstanding any other provision of law, any community
that has made adequate progress, acceptable to the
Administrator, on the construction or reconstruction of a flood
protection system which will afford flood protection for the
one-hundred-year frequency flood as determined by the
Administrator, shall be eligible for flood insurance under this
title (if and to the extent it is eligible for such insurance
under the other provisions of this title) at premium rates not
exceeding those which would be applicable under this section if
such flood protection system had been completed. The
Administrator shall find that adequate progress on the
construction or reconstruction of a flood protection system,
based on the present value of the completed flood protection
system, has been made only if: (1) 100 percent of the cost of
the system has been authorized; (2) at least 60 percent of the
cost of the system has been appropriated; (3) at least 50
percent of the cost of the system has been expended; and (4)
the system is at least 50 percent completed.Notwithstanding any
other provision of law, in determining whether a community has
made adequate progress on the construction, reconstruction, or
improvement of a flood protection system, the Administrator
shall consider all sources of funding, including Federal,
State, and local funds.
(f) Notwithstanding any other provision of law, this
subsection shall apply to riverine and coastal levees that are
located in a community which has been determined by the
Administrator of the Federal Emergency Management Agency to be
in the process of restoring flood protection afforded by a
flood protection system that had been previously accredited on
a Flood Insurance Rate Map as providing 100-year frequency
flood protection but no longer does so, and shall apply without
regard to the level of Federal funding of or participation in
the construction, reconstruction, or improvement of the flood
protection system. Except as provided in this subsection, in
such a community, flood insurance shall be made available to
those properties impacted by the disaccreditation of the flood
protection system at premium rates that do not exceed those
which would be applicable to any property located in an area of
special flood hazard, the construction of which was started
prior to the effective date of the initial Flood Insurance Rate
Map published by the Administrator for the community in which
such property is located. A revised Flood Insurance Rate Map
shall be prepared for the community to delineate as Zone AR the
areas of special flood hazard that result from the
disaccreditation of the flood protection system. A community
will be considered to be in the process of restoration if--
(1) the flood protection system has been deemed
restorable by a Federal agency in consultation with the
local project sponsor;
(2) a minimum level of flood protection is still
provided to the community by the disaccredited system;
and
(3) restoration of the flood protection system is
scheduled to occur within a designated time period and
in accordance with a progress plan negotiated between
the community and the Federal Emergency Management
Agency.
Communities that the Administrator of the Federal Emergency
Management Agency determines to meet the criteria set forth in
paragraphs (1) and (2) as of January 1, 1992, shall not be
subject to revised Flood Insurance Rate Maps that contravene
the intent of this subsection. Such communities shall remain
eligible for C zone rates for properties located in zone AR for
any policy written prior to promulgation of final regulations
for this section. Floodplain management criteria for such
communities shall not require the elevation of improvements to
existing structures and shall not exceed 3 feet above existing
grade for new construction, provided the base flood elevation
based on the disaccredited flood control system does not exceed
five feet above existing grade, or the remaining new
construction in such communities is limited to infill sites,
rehabilitation of existing structures, or redevelopment of
previously developed areas.
The Administrator of the Federal Emergency Management Agency
shall develop and promulgate regulations to implement this
subsection, including minimum floodplain management criteria,
within 24 months after the date of enactment of this
subsection.
(g) No Extension of Subsidy to New Policies or Lapsed
Policies.--The Administrator shall not provide flood insurance
to prospective insureds at rates less than those estimated
under subsection (a)(1), as required by paragraph (2) of that
subsection, for--
(1) any policy under the flood insurance program that
has lapsed in coverage,, unless the decision of the
policy holder to permit a lapse in flood insurance
coverage was as a result of the property covered by the
policy no longer being required to retain such
coverage; or
(2) any prospective insured who refuses to accept any
offer for mitigation assistance by the Administrator
(including an offer to relocate), including an offer of
mitigation assistance--
(A) following a major disaster, as defined in
section 102 of the Robert T. Stafford Disaster
Relief and Emergency Assistance Act (42 U.S.C.
5122); or
(B) in connection with--
(i) a repetitive loss property; or
(ii) a severe repetitive loss
property.
(h) Definition.--In this section, the term ``severe
repetitive loss property'' has the following meaning:
(1) Single-family properties.--In the case of a
property consisting of 1 to 4 residences, such term
means a property that--
(A) is covered under a contract for flood
insurance made available under this title; and
(B) has incurred flood-related damage--
(i) for which 4 or more separate
claims payments have been made under
flood insurance coverage under this
chapter, with the amount of each such
claim exceeding $5,000, and with the
cumulative amount of such claims
payments exceeding $20,000; or
(ii) for which at least 2 separate
claims payments have been made under
such coverage, with the cumulative
amount of such claims exceeding the
value of the property.
(2) Multifamily properties.--In the case of a
property consisting of 5 or more residences, such term
shall have such meaning as the Director shall by
regulation provide.
establishment of chargeable premium rates
Sec. 1308. (a) On the basis of estimates made under section
1307 and such other information as may be necessary, the
Administrator shall from time to time prescribe, after
providing notice--
(1) chargeable premium rates for any types and
classes of properties for which insurance coverage
shall be available under section 1305 (at less than the
estimated risk premium rates under section 1307(a)(1),
where necessary), and
(2) the terms and conditions under which, and the
areas (including subdivisions thereof) within which
such rates shall apply.
(b) Such rates shall incorporate replacement cost value and
shall, insofar as practicable, be--
(1) based on a consideration of the respective risks
involved, including differences in risks due to land
use measures, flood-proofing, flood forecasting, and
similar measures;
(2) adequate, on the basis of accepted actuarial
principles, to provide reserves for anticipated losses,
or if less than such amount consistent with the
objective of making flood insurance available where
necessary at reasonable rates so as to encourage
prospective insureds to purchase such insurance and
with the purposes of this title;
(3) adequate, together with the fee under paragraph
(1)(B)(iii) or (2) of section 1307(a), to provide for
any administrative expenses of the flood insurance and
floodplain management programs (including the costs of
mapping activities under section 1360);
(4) stated so as to reflect the basis for such rates,
including the differences (if any) between the
estimated risk premium rates under section 1307(a)(1)
and the estimated rates under section 1307(a)(2); and
(5) adequate, on the basis of accepted actuarial
principles, to cover the average historical loss year
obligations incurred by the National Flood Insurance
Fund.
(c) Actuarial Rate Properties.--Subject only to the
limitations provided under paragraphs (1) and (2), the
chargeable rate shall not be less than the applicable estimated
risk premium rate for such area (or subdivision thereof) under
section 1307(a)(1) with respect to the following properties:
(1) Post-firm properties.--Any property the
construction or substantial improvement of which the
Administrator determines has been started after
December 31, 1974, or started after the effective date
of the initial rate map published by the Administrator
under paragraph (2) of section 1360 for the area in
which such property is located, whichever is later,
except that the chargeable rate for properties under
this paragraph shall be subject to the limitation under
subsection (e).
(2) Certain leased coastal and river properties.--Any
property leased from the Federal Government (including
residential and nonresidential properties) that the
Administrator determines is located on the river-facing
side of any dike, levee, or other riverine flood
control structure, or seaward of any seawall or other
coastal flood control structure.
(d) With respect to any chargeable premium rate prescribed
under this section, a sum equal to the portion of the rate that
covers any administrative expenses of carrying out the flood
insurance and floodplain management programs which have been
estimated under paragraphs (1)(B)(ii) and (1)(B)(iii) of
section 1307(a) or paragraph (2) of such section (including the
fees under such paragraphs), shall be paid to the
Administrator. The Administrator shall deposit the sum in the
National Flood Insurance Fund established under section 1310.
(e) Annual Limitation on Premium Increases.--Except with
respect to properties described under paragraph (2) of
subsection (c), and notwithstanding any other provision of this
title--
(1) the chargeable risk premium rate for flood
insurance under this title for any property may not be
increased by more than 18 percent each year, except--
(A) as provided in paragraph (4);
(B) in the case of property identified under
section 1307(g); or
(C) in the case of a property that--
(i) is located in a community that
has experienced a rating downgrade
under the community rating system
program carried out under section
1315(b);
(ii) is covered by a policy with
respect to which the policyholder has--
(I) decreased the amount of
the deductible; or
(II) increased the amount of
coverage; or
(iii) was misrated;
(2) the chargeable risk premium rates for flood
insurance under this title for any properties initially
rated under section 1307(a)(2) within any single risk
classification, excluding properties for which the
chargeable risk premium rate is not less than the
applicable estimated risk premium rate under section
1307(a)(1), shall be increased by an amount that
results in an average of such rate increases for
properties within the risk classification during any
12-month period of not less than 5 percent of the
average of the risk premium rates for such properties
within the risk classification upon the commencement of
such 12-month period;
(3) the chargeable risk premium rates for flood
insurance under this title for any properties within
any single risk classification may not be increased by
an amount that would result in the average of such rate
increases for properties within the risk classification
during any 12-month period exceeding 15 percent of the
average of the risk premium rates for properties within
the risk classification upon the commencement of such
12-month period; and
(4) the chargeable risk premium rates for flood
insurance under this title for any properties described
in subparagraphs (A) through (E) of section 1307(a)(2)
shall be increased by 25 percent each year, until the
average risk premium rate for such properties is equal
to the average of the risk premium rates for properties
described under paragraph (3).
(f) Adjustment of Premium.--Notwithstanding any other
provision of law, if the Administrator determines that the
holder of a flood insurance policy issued under this Act is
paying a lower premium than is required under this section due
to an error in the flood plain determination, the Administrator
may only prospectively charge the higher premium rate.
(g) Frequency of Premium Collection.--With respect to any
chargeable premium rate prescribed under this section, the
Administrator shall provide policyholders that are not required
to escrow their premiums and fees for flood insurance as set
forth under section 102 of the Flood Disaster Protection Act of
1973 (42 U.S.C. 4012a) with the option of paying their premiums
annually or monthly.
(h) Rule of Construction.--For purposes of this section, the
calculation of an ``average historical loss year''--
(1) includes catastrophic loss years; and
(2) shall be computed in accordance with generally
accepted actuarial principles.
(i) Rates for Properties Newly Mapped into Areas with Special
Flood Hazards.--Notwithstanding subsection (f), the premium
rate for flood insurance under this title that is purchased on
or after the date of the enactment of this subsection--
(1) on a property located in an area not previously
designated as having special flood hazards and that,
pursuant to any issuance, revision, updating, or other
change in a flood insurance map, becomes designated as
such an area; and
(2) where such flood insurance premium rate is
calculated under subsection (a)(1) of section 1307 (42
U.S.C. 4014(a)(1)),
shall for the first policy year be the preferred risk premium
for the property and upon renewal shall be calculated in
accordance with subsection (e) of this section until the rate
reaches the rate calculated under subsection (a)(1) of section
1307.
(j) Premiums and Reports.--In setting premium risk rates, in
addition to striving to achieve the objectives of this title
the Administrator shall also strive to minimize the number of
policies with annual premiums that exceed one percent of the
total coverage provided by the policy. For any policies
premiums that exceed this one percent threshold, the
Administrator shall report such exceptions to the Committee on
Financial Services of the House of Representatives and the
Committee on Banking, Housing, and Urban Affairs of the Senate.
(k) Consideration of Mitigation Methods.--In calculating the
risk premium rate charged for flood insurance for a property
under this section, the Administrator shall take into account
the implementation of any mitigation method identified by the
Administrator in the guidance issued under section 1361(d) (42
U.S.C. 4102(d)).
(l) Clear Communications.--The Administrator shall clearly
communicate full flood risk determinations to individual
property owners regardless of whether their premium rates are
full actuarial rates.
(m) Protection of Small Businesses, Non-Profits, Houses of
Worship, and Residences.--
(1) Report.--Not later than 18 months after the date
of the enactment of this section and semiannually
thereafter, the Administrator shall monitor and report
to Committee on Financial Services of the House
Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate, the Administrator's
assessment of the impact, if any, of the rate increases
required under subparagraphs (A) and (D) of section
1307(a)(2) and the surcharges required under section
1308A on the affordability of flood insurance for--
(A) small businesses with less than 100
employees;
(B) non-profit entities;
(C) houses of worship; and
(D) residences with a value equal to or less
than 25 percent of the median home value of
properties in the State in which the property
is located.
(2) Recommendations.--If the Administrator determines
that the rate increases or surcharges described in
paragraph (1) are having a detrimental effect on
affordability, including resulting in lapsed policies,
late payments, or other criteria related to
affordability as identified by the Administrator, for
any of the properties identified in subparagraphs (A)
through (D) of such paragraph, the Administrator shall,
not later than 3 months after making such a
determination, make such recommendations as the
Administrator considers appropriate to improve
affordability to the Committee on Financial Services of
the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate.
* * * * * * *
MINORITY VIEWS
H.R. 2565 would require the Federal Emergency Management
Agency (FEMA) to study and then immediately implement a change
in the way flood insurance rates are calculated. Currently,
FEMA uses a national average replacement value when setting
rates. H.R. 2565 would require FEMA to instead use the specific
replacement value of the property to be insured. While this
would result in more precise rates for the specific property,
it could result in higher premiums for certain properties
across the country.
The use of a national average means that, in general,
policyholders with properties below the average value may be
overpaying for flood insurance, while policyholders with
properties above the average value may be underpaying for flood
insurance. This is an issue that should be further studied.
However, Congress should have the opportunity to review the
results of the study to better determine exactly what the
impacts will be if this change were enacted. At this time, it
is unclear what the ``pivot point'' at which premiums would be
affected, and it is equally unclear how fast or by how much
premiums would rise or fall as a result of this change.
Given the broader affordability challenges associated with
flood insurance premiums, we must be cautious in calling for
changes that could have unintended consequences on flood
insurance costs. If flood insurance becomes widely
unaffordable, this could have devastating consequences on the
housing market as policyholders lose the ability to purchase
coverage, and are left unprotected in the event of a flood.
For these reasons, we oppose H.R. 2565.
Maxine Waters.
Michael E. Capuano.
Carolyn B. Maloney.
Keith Ellison.
Stephen F. Lynch.
Joyce Beatty.
Vicente Gonzales.
Gwen Moore.
Brad Sherman.
Al Green.
Emanuel Cleaver.
Daniel T. Kildee.
Charlie Crist.
Nydia Velazquez.
Gregory Meeks.
[all]