Affordability of National Flood Insurance Program Premiums Report 1 (2015) / Chapter Skim
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2 National Flood Insurance Program History and Objectives
2 National Flood Insurance Program History and Objectives
Pages 23-34
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From page 23... ...
With this history as background, this chapter discusses the enabling NFIP legislation and specific financial roles for the NFIP in the partnership. The changing nature of that partnership helps explain the motivation for provisions in BW 2012 and Homeowners Flood Insurance Affordability Act of 2014 (HFIAA, 2014)
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From page 24... ...
Congress responded by passing the Federal Flood Insurance Act of 1956, which created the Federal Flood Indemnity Administration and established a flood insurance program, a reinsurance program, and a loan contract program. In 1957, specific implementation proposals were put before Congress, but Congress found them impractical and did not appropriate any funds.
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From page 25... ...
. steps toward a national program for flood insurance" and concluded that flood insurance was "feasible" and could "promote the public interest" and could be used both to help victims bear the risk of floods, and discourage "unwise occupancy of flood-prone areas." Other subjects of reform included improving knowledge about flood hazards, coordination and planning for new development in floodplains, technical services to floodplain managers, and adjustment of flood control policy based on "sound criteria" (Task Force on Federal Flood Control Policy, 1966)
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From page 26... ...
Although modified many times, the act remains the legislative foundation of the NFIP. In creating the NFIP, Congress identified two primary objectives: to encourage state and local governments to use land-use adjustments to constrict development of land exposed to flood hazards and guide future development away from such locations, and provide flood insurance through a cooperative public–private program with equitable sharing of costs between the public and private sectors (42 US Code, Section 401 Congressional Findings and Statement of Purpose)
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From page 27... ...
Because the Treasury was to be the reinsurer once claims in a given year exceed a specified level, an NFIP risk-based premium would not need to include expected claims from catastrophic-loss events, thus keeping NFIP risk-based premiums at reasonable levels.3 Second, premiums would be based on less than NFIP risk-based rates for some properties. At the time of the legislation, structures had been constructed in the nation's floodplains with little understanding of or regard for flood risk, in part because flood risks had not been adequately delineated by public agencies and in part because many local governments had not enacted zoning or other regulations to take flooding into consideration when providing permits for new construction.
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From page 28... ...
Once properties eligible for pre-FIRM rates were no longer part of the portfolio, the only payments from the Treasury to the pool would be for loans, or in the event of a catastrophic loss. Taken together, those two provisions provided the underlying financial structure for ensuring that premium revenues would equal claims paid plus expenses over time.
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From page 29... ...
companies to act as NFIP policy servicing agents. The WYO program allowed insurance companies to sell and manage flood insurance policies in their own names, which encouraged sales.
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From page 30... ...
that had been offered since the beginning of the program with NFIP riskbased premiums. The practice of grandfathering had been introduced by FEMA to allow property owners who met specific conditions to keep a lower rate in the event that an updated FIRM showed that they were at a greater flood risk than originally believed.
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From page 31... ...
Section 9 of HFIAA 2014 expressed a concern about "The impact of increases in risk premium rates on participation in the National Flood Insurance Program." TAKEUP RATES: A CONTINUING CONCERN The original intent of the NFIP was to set premiums and have rules for insurance purchase that would serve the nation's broad flood risk management goals. The NFIP was expected to minimize taxpayers' costs of disaster recovery by substituting insurance payouts for aid.
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From page 32... ...
Provisions of that bill (and which continue today) that were expected to increase enforcement of the mandatory purchase requirement included the following: coverage now is required over the life of a loan, lenders must escrow flood insurance payments when they require escrows, lenders need to obtain flood insurance policies if borrowers do not, and failure to comply with the mandatory purchase requirement can result in the fining of lenders.
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From page 33... ...
BW 2012 increased the emphasis on setting NFIP rates that reflected flood risk, and on charging premiums that would cover claims paid and other related expenses.
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