Legislative progress on flood insurance changes still elusive

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WASHINGTON — As Congress moves quickly toward passing regulatory relief legislation, another financial services policy goal — long-term reform of the National Flood Insurance Program — remains stalled.

The House has passed a bill to extend and reform the NFIP. But the lack of consensus in the Senate Banking Committee, coupled with the Senate’s full plate of other issues, doesn't bode well for a reform bill reaching the finish line this year.

"Realistically, it doesn't look like anything is going to happen," said R.J. Lehmann, director of finance and insurance at the R Street Institute.

Lawmakers have expressed desire to enact a flood insurance reform package, but there is significant disagreement on what it should look like, and differences tend to break down along geographic lines. Any motivation to break the stalemate is hampered by the fact that Congress is more focused on issues such as bank regulatory relief.

"This issue doesn't break down along partisan lines," said a bank lobbyist who spoke on the condition of anonymity. "So it is not surprising that this is slow going.”

Along with the House bill, Senate Banking Committee chairman Mike Crapo, R-Idaho, and Sen. Sherrod Brown, D-Ohio, have also co-sponsored flood insurance reform legislation. The bill sponsored by Crapo and Brown calls for a six-year reauthorization of the NFIP with provisions to address repetitively flooded properties.

But Sen. Robert Menendez, D-N.J., whose home state is prone to flooding risks, opposes both measures.

"The House bill is a nonstarter in the Senate because we all realize it would do more to undermine the NFIP than make it more sustainable, it does nothing to address affordability, and ignores the need to invest in [flood] mitigation and resiliency to reduce long-term costs," Steven Sandberg, a Menendez spokesman, said in a statement.

Sandberg said Menendez’s alternative bill is “bipartisan” and “has broad support,” but “the decision on whether or not the committee takes up flood insurance rests with” Crapo.

Amanda Critchfield, a spokeswoman for the Senate Banking Committee, said, “Negotiations are ongoing.”

To be sure, there is still time this year for senators to work on a flood insurance reform bill. But the clock is also ticking any congressional business as the November midterm elections approach. If a long-term bill fails to materialize, Congress can simply reauthorize the existing National Flood Insurance Program for another year. The federal government would continue to pay flood insurance claims and existing policyholders would continue to have coverage.

Lehmann said the current status is similar to a decade ago, when lawmakers tried to reform the program, but could not reach an agreement. Over the next four years, Congress passed continuing funding resolutions to keep the flood insurance program going.

"It is like a rerun of 2008," Lehmann said.

In 2012, Congress finally passed a NFIP reform bill known as the Biggert-Waters Act, which still governs the flood insurance program today. But efforts to reform that law have remain elusive.

Last October, Congress approved a $36.5 billion emergency supplemental appropriations bill to provide disaster relief for areas hit by hurricanes and wildfires. The emergency funding bill also included $16 billion in debt forgiveness for the National Flood Insurance Program.

The House passed its flood insurance reform bill by a 237-189 vote on Nov. 14. The legislation would increase flood insurance premiums on most policyholders.

Congress is expected to approve another short-term extension of the National Flood Insurance Program as part of the budget deal that is currently being worked on by House and Senate appropriators. That would extend the NFIP from March 23 to Sept. 30.

But some industry representatives are still hopeful that lawmakers can do more by the fall.

"We are mildly optimistic that we can get a long-term reauthorization bill with flood insurance reforms between now and Sept. 30," said Jamie Gregory, deputy chief lobbyist of the National Association of Realtors, which supports the House-passed flood insurance bill.

But skeptics note there is not enough agreement on many elements of the bill, including provisions regarding private flood insurance and repetitive loss properties.

The treatment of repetitive loss properties is the biggest issue for senators from flood-prone states such as Louisiana, New York and New Jersey.

Meanwhile, Republicans generally support proposals to allow insurance companies to sell private flood insurance policies to homeowners, but many Democrats are concerned private insurers will "cherry pick" the policyholders with less flood risk, leaving the National Flood Insurance Program in worse financial shape.

The banking lobbyist noted that one challenge for lawmakers is how to address the issue of repetitively flooded properties to make the flood insurance program more sustainable and still affordable to homeowners.

If flood insurance is suddenly canceled after a property is flooded a third time, it would devalue the property and the homeowner will likely walk away, leaving the lender with a loss.

A bill has to "develop a process that is fair and reasonable for borrowers and lenders," the lobbyist said.

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Flood insurance Mortgages Regulatory reform Natural disasters Mike Crapo