Posted: 11/19/2005

House Passes Funds Increase for NFIP - President Likely to Sign Monday

On Friday Nov. 18, the House of Representives, by unanimous consent, passed H.R. 4133, a bill that will increase the National Flood Insurance Program's (NFIP) borrowing authority from $3.5 billion to $18.5 billion.

The NFIP was established in 1968 as a federal program offerring flood insurance at low rates to homeowners who live in the 100 year flood zone. The program was designed so that the premium dollars that are taken in every year are used to pay out any flood losses that are incurred by policyholders. However, in the first 10 months of 2005, the flood losses sustained were so great that the estimated claims will likely exceed $30 billion. These claims are greater than all claims the NFIP has paid out from 1968-2004 combined. Due to the extraordinarily large number of claims, the NFIP quickly depleted its funds. In fact, on Nov. 14, the acting head of the NFIP sent a letter to all "Write-Your-Own Companies" (WYO's) informing them that they should stop paying all claims on flood policies until further notice.

H.R. 4133 allows the NFIP to borrow up to $18.5 billion and is a short term fix. It will allow the NFIP to resume paying out claims into next year when Congress returns from its winter recess. The House passage followed approval of this legislation by the Senate on Thursday. The bill is now on its way to the President's desk and he is expected to sign the bill into law no later than Monday. NAMIC expects that the NFIP will inform WYO's that their line of credit has been extended and they should resume paying claims immediately.

When Congress returns in January, it will likely take up legislation to further extend the NFIP's borrowing authority, so that the remaining $7-15 billion dollars in expected claims can be paid expeditiously. However, many members of Congress have indicated that any additional funding will be contingent on several possible reforms of the NFIP. Among the possible reforms are mandatory coverage for everyone who lives in the natural 100 year flood plain, extending the flood zone to 1-500 year flood zones, and increasing the level of coverage from the current maximum of $250,000.