May 01, 2018

Gillibrand Statement On New Investigation Shedding Light On A “Broken” National Flood Insurance Program That Continues To Shortchange Homeowners Nearly Six Years After Superstorm Sandy

Homeowners Who Suffered Through Flooding in 2016 Louisiana Storms Are Falling Victim to the Same Schemes and Underpayments that New York and New Jersey Families Faced After Superstorm Sandy; Gillibrand: “It is Sickening to See the Same Underpayments Happen All Over Again, By Some of the Same People”

Washington, DC – U.S. Senator Kirsten Gillibrand (D-NY) released the following statement today regarding the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP) after a CBS News investigation last night reported that after flooding in Louisiana in 2016, “much of the money that should have helped people rebuild…instead goes to the very people fighting against them.” This report comes nearly six years after the same “broken system” systematically shortchanged New York and New Jersey families who were victims of Superstorm Sandy:

“It is sickening that some of the same people who were involved with underpaying Sandy survivors are still at it, and FEMA is failing to protect its policyholders who desperately need their help. It is time for FEMA to clean house, but it is also clear that FEMA is not going to fix itself. Congress must step in and pass the bipartisan reforms I authored along with Senator Bill Cassidy in the Flood Insurance Affordability and Sustainability Act. Our reforms will protect policyholders from altered engineering reports and ensure that there is transparency and accountability in the National Flood Insurance Program’s claims process. We must also take a hard look at FEMA’s Write Your Own program and rein in the insurance companies that have been let off the hook too many times. We can’t keep doing things the same way and expect a different result while FEMA continues to fail victims of flooding.” 

Senator Gillibrand passionately urged for immediate reforms to FEMA and the NFIP after Superstorm Sandy victims faced an extensive and burdensome flood insurance claims process. Companies underpaid potentially thousands of claims. Along with Senators Bill Cassidy, MD (R-LA), and Shelley Moore Capito (R-WV), Gillibrand introduced legislation last year to create urgently needed reforms as part of the reauthorization of the NFIP that is currently extended and set to expire on July 31, 2018.

This legislation would reform the NFIP by doing the following:

Enhancing Flood Insurance Affordability and Accessibility

  • Provides Greater Investment in Flood Mitigation & Resiliency. FEMA will be required to reallocate the existing surcharges established under P.L. 113-89 to better finance the Flood Mitigation Assistance Program. Such an adjustment to existing fees would yield approximately $400 million annually for flood mitigation activities.
  • Strengthens the Affordability Standard Disclosure. To ensure continued purchase of flood insurance policies in higher-risk areas, federal administrators of the NFIP must identify policyholders with premiums in excess of the one percent of coverage limitation at the county/parish and state levels. 
  • Modernizes Increased Cost of Compliance (ICC) Coverage. Currently, ICC claims payments must be used to fund up to $30,000 in compliance costs associated with State or local floodplain management laws or ordinances, which typically require structure elevation. The limit of $30,000 is inadequate to elevate most structures. FEMA shall increase ICC coverage to $75,000 with 100% of ICC payments allowed to occur outside traditional policy limits. FEMA shall also expand eligibility items to be paid under ICC to be substantially similar to eligible items under other FEMA mitigation grant programs.
  • Provides Premium Credits to Offset the Cost of Obtaining an Elevation Certificate. Offers policyholders without an elevation certificate, a one-time rate credit of up to $500 for the cost of obtaining elevation data. Knowledge of flood risk and accuracy of a structure’s base flood elevation information will be enhanced by removing or reducing the financial barrier associated with the acquisition of elevation certificates.
  • Facilitates Mitigation Credits that Reduce Premium Rates. FEMA will develop meaningful cost reductions, in excess of 10% of the current risk premium rate for a property, for flood mitigation activities undertaken on properties in all zones, including moderate risk zones. Flood mitigation activities shall be defined by the Administrator and include elevation of mechanical systems and recommendations identified in FEMA Mitigation Assessment Team reports.
  • Provides Affordability Vouchers to Offset the Cost of Flood Insurance. For certain policyholders, owner-occupied households for which flood insurance premiums and fees would result in housing costs exceeding 40 percent of household income, affordability vouchers shall be available to offset premium costs exceeding the 40% housing cost threshold. For policyholders with household incomes below 80% of area medium income, affordability vouchers are available for portions of the flood insurance premium that exceed 1% of the policy coverage limit. 
  • Modernizes coverage limits to align with actual replacement costs of residential and non-residential structures. Increases coverage limits from $250,000 to approximately $500,000 for residential structures and $500,000 to approximately $1,000,000 for multifamily and business structures to mitigate financial loss and enhance coverage for the replacement value of structures in competitive property markets. Instead of making a one-time increase, the coverage limits would track the Federal National Mortgage Association (Fannie Mae) confirmation loan limits for single-family dwellings. The legislation establishes a “baseline amount” that tracks the Fannie Mae conforming loan limit. As the Fannie Mae limit increases, so would coverage limits, thus providing a long-term solution for housing market changes.
  • Creates an Agreed Value Insurance Pilot option for insureds in addition to the traditional stochastic model used to quantify flood loss in monetary terms. FEMA will establish a pilot program that adopts a financial model for flood risk exposures. Insurance contract prices based on exceedance probabilities of dollar loss levels with a parametric trigger (e.g., indexed to flood/water gauges) used as an alternative to direct loss measurement and site-by-site examination of actual loss could dramatically decrease the cost of flood insurance without jeopardizing the solvency of the National Flood Insurance Program. The Agreed Value Insurance Policy uses FEMA’s existing water depth probability that waters will reach or exceed a given depth of a structure relative to Base Flood Elevation. Savings to the policyholder are achieved by pre-determining the amount paid out in claims (avoiding costly overhead expenditures) according to the depth of water damage to a structure.

Enhancing National Flood Insurance Program Solvency and Sustainability

  • Clarifies FEMA’s authority to cede NFIP risk in the capital markets through Insurance-Linked Securities (ILS). Stipulates that the FEMA Administrator shall annually cede a portion of the flood insurance program’s risk to the private reinsurance and/or capital markets at rates and on terms determined by the Administrator to be reasonable and appropriate, in an amount sufficient to maintain the ability of the program to pay claims and limit the program’s exposure to potential catastrophic losses from extreme events.
  • Provides Access to NFIP Claims Data. The NFIP maintains decades of claims data for millions of structures in lower to higher flood risk zones. FEMA shall study the feasibility of selling or licensing the use of anonymized historical claims data to non-governmental entities. Upon completion of a feasibility study 12 months after the passage of this Act, the FEMA administrator is authorized to sell or license historical claims data and promulgate rules necessary to implement such transactions. Proceeds from sale or license transactions shall be deposited into the National Flood Insurance Fund.   
  • Preserves Funding of NFIP Flood Mapping and Mitigation Activities. In an effort to sustain funding for flood mapping, mitigation and flood management activities, the NFIP federal policy fee will carry over to private flood insurance policies where such fees finance a public activity that holistically benefits the flood insurance market.  

Providing Private Market Access, Accountability and Competition

  • Removes Barriers to Private Flood Insurance Options. Additional entrance of private insurers into the flood insurance market can offer homeowners more choices, competitive products, and administrative efficiencies yielding lower premiums. Such market entrance by private insurers should preserve the availability and affordability of flood insurance coverage for all consumers while continuing the investment in floodplain mapping and management.
  • Preserves “Grandfathering” through Continuous Coverage. Allows NFIP policyholders to purchase a private flood insurance policy and switch back to NFIP coverage without losing continuous coverage or grandfathering status.
  • Facilitates Private Market Participation by Write Your Own Companies. Gradually phases-in private coverage option by initially expanding eligibility, over a two year period, to certain risk classifications (i.e. business properties, second homes, and severe repetitive loss properties). The Biggert-Waters Act (P.L. 112-141) has set an aggressive rate adjustment trajectory for these risk categories where full actuarial rates will be realized in a compressed timeline. In addition, the Homeowner Flood Insurance Affordability Act (P.L. 113-89) assessed a $250 surcharge on nonresidential and secondary home properties, creating space for a WYO private insurer to offer a competitive flood insurance product. After two years and upon completion of a study measuring the risk classification underwritten by participating WYO companies, the FEMA Administrator is authorized to limit or expand the participation of WYO companies in the broader flood insurance marketplace.  
  • Creates a Pilot Risk-Sharing Program with Write Your Own Companies. Instructs the FEMA Administrator to engage in NFIP risk-sharing pilot programs where WYO companies or other qualified insurers assume a first-loss position of claims at or below $50,000 and the NFIP operating in a secondary loss position for all structures encompassed in such pilot programs at the determination of the Administrator.

Modernizing Flood Mapping and Flood Risk Accuracy 

  • Reauthorizes the National Flood Mapping Program. With nearly 3 million miles of unidentified flood hazard areas, along with the need to update and accurately assess risk of existing flood zones, the National Flood Mapping Program shall be reauthorized at a funding level of $500 million annually.
  • Provides Mapping Standards and Guidelines for Nongovernmental Entities. Allows localities to elect to develop their own alternatives to NFIP flood maps. FEMA and the Technical Mapping Advisory Council (TMAC) shall provide map standards for flood maps developed by communities, subject to approval by FEMA, thereby giving communities additional avenues to streamline the FEMA mapping process and develop maps that use updated community data & technology.
  • Encourages the Use of High-Resolution Mapping Technology. Instructs FEMA to facilitate, partner, and leverage current high-resolution topographic data (e.g., Light Detection and Ranging [LiDAR] data, or other new and emerging technologies) in the development of flood insurance rate maps.
  • Improves the Flood Mapping of Levee-Protected Areas. FEMA shall replace its “Zone D” designation (defined as an area of undetermined/undefined risk) in levee-protected areas with risk zones that are more appropriate for the level of protection that the flood mitigation features afford. Often, premiums in Zone D are higher than in low/moderate risk zones. Low/moderate risk shall be assigned to the new zone until actuarial rates are promulgated.

Enhancing National Flood Insurance Program Transparency and Accountability

  • Institutes Deadlines for NFIP Claims Determinations. Requires NFIP administrators to make determinations on flood claims within 30 days of the initial filing, followed by any payment owed under the claim. Prevents claims denial based on Proof of Loss requirements. Establishes notice of a claim deadline within 60 days and moves the proof of loss deadline to 180 days.
  • Increases Transparency for Engineering Reports and other Claims Documents. Requires FEMA to transmit final engineering reports to the policyholder and prohibits anyone other than the individual responsible for the report to make alterations.
  • Increases Statute of Limitations for Disputed Claim Payments. Extends the Statute of Limitations for individuals to seek a judicial remedy for a disputed claim payment or a denial of a claim or appeal to 2 years after the flood event or 90 days after the claim is denied, whichever is later.
  • Increases Accountability of NFIP Contractors. Gives FEMA greater authority to oversee contractors and litigation costs arising from NFIP claims in order to protect against fraud and excessive billing by companies. It also ensures that NFIP contractors are not shielded from civil liability when they commit fraud.

For a full summary of the bill, click here.