Flood Insurance Reform Act of 2012 (H.R. 4348; Division F – Title II)

The Agreement preserves the core elements of the House bill (H.R. 1309) which passed the House on July 12, 2011, by a vote of 406 to 22. Specifically, the Agreement re-authorizes the National Flood Insurance Program for five years and makes important reforms to the Federal Emergency Management Agency’s (FEMA) premium rate structure to place the program on a stronger financial footing. Among the Agreement’s key reforms are: (1) phasing out discounted rates yet providing communities and homeowners adequate time to adjust to risk-based premiums by phasing in those rates over five years at 20 percent per year; (2) requiring FEMA to update maps according to recommendations made by a technical mapping advisory council composed of government and non-government experts; (3) streamlining FEMA’s flood mitigation programs to make them more effective and reduce repetitive flood claims; 4) prohibiting FEMA from charging discounted rates for new and lapsed policies; (5) establishing an independent scientific resolution panel to consider map appeals by communities; (6) requiring FEMA to establish an ongoing mapping program to review, update and maintain flood insurance rate maps and requiring that the most accurate data be used in mapping and maintenance.

While the Agreement requires FEMA to include areas of residual risk, including those behind levees, and areas with the 500-year floodplain on flood insurance rate maps, it does not include Senate language that would have required FEMA to treat areas of residual risk as a special flood hazard area, which would have subjected residual risk areas to mandatory purchase of flood insurance. In addition, the Agreement does not include Senate language that would have required that communities be notified when they are mapped into a 500-year floodplain and also would have required lenders to give notice to purchasers or lessees of property in the 500-year floodplain.

The Agreement also includes several new provisions: (1) require the Federal Insurance Office to carry out a study on natural catastrophes to assess the availability and affordability of all-peril insurance; require the Undersecretary of Commerce for Oceans and Atmosphere to establish an alternate loss allocation system (i.e. COASTAL Formula) for determining and allocating wind losses and flood losses involving indeterminate losses caused by storms with maximum winds of 39 or more miles per hour. The provision states that the COASTAL formula shall not be used to pay flood claims from indeterminate losses until FEMA determines based on report findings by the National Academy of Sciences that use of the COASTAL Formula will not have an adverse financial impact on the National Flood Insurance Program and that the COASTAL Formula is based on valid scientific assumptions; (2) require FEMA to conduct an affordability study on flood insurance as well as to encourage and maintain NFIP participation, methods to educate consumers on flood risk and methods for establishing an affordability framework for NFIP including methods to aid individuals to afford risk-based premiums under NFIP through targeted assistance; and (3) establishment of a five-Member Scientific Resolution Panel to consider appeals filed within 60 days of a proposed determination of a flood elevation by a community and an owner or lessee. Such panel is required to issue determinations of a resolution of the dispute and include recommendations for the base flood elevation determination or the designation of an area having special flood hazards that shall be reflected in FEMA’s Flood Insurance Rate Maps.

The following are key highlights of the Agreement:

  • Extends the flood insurance program for 5 years until September 30, 2017.
  • Provides for a 5-year phase-in of actuarial rates for newly mapped areas.
  • For pre-FIRM (i.e. discounted) properties, the Agreement phases in actuarial rates over 5 years for non-residential properties, non-primary residences, homes substantially damaged or improved, homes with multiple claims, and properties purchased after the date of enactment.
  • Prohibits FEMA from requiring communities in residual risk areas that are protected by flood protection systems (i.e. levees, dams) from being subject to a mandatory flood insurance purchase requirement.
  • Streamlines FEMA’s mitigation programs to make them more effective and reduce repetitive flood claims
  • Establishes a Technical Mapping Advisory Council to propose new mapping standards for 100-year flood insurance maps.
  • Indexes maximum coverage limits to inflation.
  • Prohibits FEMA from extending discounted rates to new or lapsed policies.
  • Increases the annual limitation on premium increases from 10 to 20 percent.
  • Allows flood mitigation structures built with non-Federal funds to be considered for lower flood insurance rates (AR 99).
  • Establishes minimum annual deductibles for pre-FIRM (i.e. discounted) properties of $1,500 (if damage < $100,000) and $2,000 (if damage > $100,000. Establishes minimum annual deductibles for post-FIRM properties of $1,000 (if damage <$100,000) and $1,250 (if damage > $100,000).
  • Allows policyholders not subject to escrow requirements to pay flood insurance premiums in installments.
  • Requires annual notifications to homeowners living in flood zones about the flood risk in their community, the geographical boundaries of the flood zone, the requirement to purchase flood insurance, and a general estimate of what similar homeowners in similar communities typically pay for flood insurance.
  • Requires that each good faith estimate provided to homebuyers at closing include a notification about the availability of flood insurance regardless of whether or not the home being purchased is located in a flood zone, the ability to escrow flood insurance payments, and contact information for the National Flood Insurance Program.
  • Allows homeowners as well as communities that receive a letter of map amendment or letter of map revision to recoup reasonable costs associated with bona fide mapping errors by FEMA. FEMA is authorized to reimburse such up to a limit of $250,000 annually.
  • Requires notification to Members of Congress regarding flood map revisions and updates.
  • Requires notification to renters on the availability of contents insurance.
  • Authorizes localities to use Community Development Block Grant funds to communities to reach out to homeowners about flood insurance rates, mapping, and inclusion in flood zone.
  • Authorizes localities to use Community Development Block Grant funds to supplement existing state or local funding for building code enforcement.
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