Senate Democrats

S. 2284, the Flood Insurance Reform and Modernization Act of 2007

Summary and Background

Congress established the National Flood Insurance Program (NFIP) in 1968 after finding that floods have “created personal hardships and economic distress which have required unforeseen disaster relief measures and have placed an increasing burden on the Nation’s resources.” Congress wanted to create “a reasonable method of sharing the risk of flood losses through a program of flood insurance which can complement and encourage preventive and protective measures.” (P.L. 90-448) Administered by the Federal Emergency Management Agency (FEMA), NFIP provides 1) insurance that serves as an alternative to federal disaster assistance for individuals living in flood-prone areas; 2) mapping to identify areas subject to flooding; and 3) mitigation to reduce future flood-related losses through community floodplain management measures.

Hurricanes Katrina, Rita, and Wilma caused 1,700 deaths, families and businesses and catastrophic property losses associated with massive flooding. The devastation of the 2005 hurricane season exposed millions of Americans to the consequences of the lack of affordable insurance, revealed the inadequacy of the NFIP to handle a catastrophe of this magnitude, and left the program with staggering debt. Congressional Democrats, led in the Senate by Senator Dodd, have responded with legislation that would implement several key reforms to ensure that NFIP can continue to operate, is self-sustaining, and adequately identifies areas at risk of flood loss.

If enacted, the Flood Insurance Reform and Modernization Act of 2007, would ensure sufficient funds for NFIP, expand and encourage the purchase of flood insurance, establish financial soundness; modernize the flood mapping program; protect policyholders and taxpayers; reform the procedures associated with the reimbursement of insurance companies, and mandate studies.

The Senate is expected to consider S.2284 during the week of May 5, 2008.

This Legislative Bulletin provides a description of major provisions, anticipated amendments, legislative history, the Statement of Administration Policy, and links to related reading resources.

Major Provisions

Ensure Sufficient Funds for the National Flood Insurance Program

The NFIP has grown significantly over its history from one million policyholders and $50 billion of risk exposure to over 5.4 million policyholders with in excess of $1 trillion of risk exposure. While the program has been largely self-sustaining, the catastrophic nature of the 2005 hurricane season, coupled with the flood losses of 2004, showed weaknesses in the program and left FEMA with almost $20 billion in debt to the U.S. Treasury. In the years between the program’s inception and 2005, taxpayers paid out one billion dollars for flood claims, with the large majority of claims being paid through premium income.

Claims payments resulting from the 2005 hurricanes, however, exceed the cumulative claims payments made to policyholders since the program began. Due to the structure and the current financial situation of NFIP, the program is not in a position to meet the claims of policyholders, nor is it in a position to pay back the debt incurred from the 2005 claims.

FEMA has indicated that it will be unable to repay the debt currently owed to the U.S. Treasury. (this claim has been substantiated by the Congressional Budget Office and the Government Accountability Office) Interest alone on this debt is approximately $900 million annually, almost 40 percent of annual premium income. To ensure the continuation of NFIP as well as the long-term financial solvency of the program, this bill forgives the $17 billion in debt owed by FEMA, and makes a number of changes designed to increase the ability of the program to pay claims in the future.

Specifically, S.2284 would: