Editor's note: The scheduled committee votes were delayed on Wednesday following a gunman's attack on Republican lawmakers in Alexandria, Va. The committee has said it will reschedule the vote soon.
WASHINGTON — The House Financial Services Committee is slated to vote on several bills Wednesday that are designed to make private flood insurance a viable alternative to the National Flood Insurance Program.
One bill would allow banks to accept private flood insurance policies in originating single-family loans to meet the mandatory flood insurance coverage requirements. Currently, only National Flood Insurance Program policies are allowed on federally backed mortgages.
This provision is not "considered terribly controversial," said Frank Nutter, vice president at the Reinsurance Association of America. "All that it does is make clear that the federal banking regulators can issue regulations authorizing banks to accept private flood insurance policies."
Congress passed the Biggert-Waters Act in 2012 that authorized the use of private flood insurance as an alternative to NFIP policies. But there were "ambiguities in the bill that made it very difficult for the regulators to draft a regulation," said Joseph Pigg, senior vice president at the American Bankers Association.
On Wednesday, the committee will also vote on a bill, co-sponsored by Reps. Dennis Ross, R-Fla., and Kathy Castor, D-Fla., that would clarify that private flood policies approved by state commissioners can be purchased as an alternative to NFIP policies.
But the House committee's drive to promote private flood insurance is rankling the National Association of Home Builders. The builders are concerned about a provision in the 21st Century Flood Reform Act that would place a 10% flood insurance surcharge on newly constructed homes in floodplains where states do not allow the sale of private flood insurance policies.
If private insurance is not available in a state, "homeowners will be forced to pay a 10% surcharge on their NFIP policy," the homebuilder group warned in a letter to House committee leaders.
The trade group said it will oppose the entire legislation until this surcharge is dropped.
"This surcharge is a penalty for policyholders solely because they purchased a newly-constructed, more resilient home and a market for private insurance has not developed in their state," the letter said. "Also, policyholders will only be given access to the NFIP for only 12 months at a time, or at the discretion" of Federal Emergency Management Agency.
The House Financial Services Committee is also expected to consider a bill that would terminate NFIP policies on properties with multiple claims that exceed two-times their replacement value.
That bill has some in the industry concerned. "We are worried that pulling NFIP coverage will substantially reduce the value of the properties. And it could lead to a regional foreclosure crisis," Pigg said.
Speaking at a National Housing Conference event on Friday, Austin Perez, a senior policy representative at the National Association of Realtors, noted that the group supports both the National Flood Insurance Program and private flood insurance. However, he said private insurers often provide better coverage at a lower cost than the National Flood Insurance Program.
The federal program was created in 1968 and it made flood insurance available for the first time. Now, private insurers have the latest technology to adjust cost or coverages, while "half of NFIP policyholders are overcharged and half are undercharged," Perez said.
Meanwhile, environmentalists favor risk-based flood premiums so that it will cost more to build in wetlands and flood plains.
"The heavily subsidized NFIP has masked risks and encouraged people to develop and live in these areas. Since the program was founded, floodplain development has gone rampant," said Josh Saks, legislative director for the National Wildlife Federation.
"We believe rates have to reflect risks — true risks — that is, how people take into account the costs associated with flooding. So we will always be pushing the program to have more risk-based rates," Saks said at the National Housing Conference event. Private insurers generally charge risk-based rates.
The National Flood Insurance Program collects $3.1 billion in premiums a year and is $25 billion in debt. The Congressional Budget Office estimates that flood program incurs a $1.3 billion deficit each year after paying claims.
"So you can see that it is a heavily underwater program," said Steve Ellis, vice president for Taxpayers for Common Sense.
"As you subsidize development in high risk areas," Ellis said, investments in infrastructure for roads, sewers and electricity follow. "They also get destroyed along with the homes in flooding events," he said, which triggers larger disaster payments and government deficits.
Environmental groups and Democratic lawmakers want Congress to provide funding for loss mitigation programs that will help elevate homes and restore wetlands. That is unlikely in the House bill.
However, the Senate will likely take a "more bipartisan approach," Nutter said.