Private Flood Insurance and the National Flood Insurance Program

June 26, 2018 – January 9, 2023 R45242

Private Flood Insurance and the National
Flood Insurance Program
Updated January 9, 2023
Congressional Research Service
https://crsreports.congress.gov
R45242

Private Flood Insurance and the National Flood Insurance Program

Summary
The National Flood Insurance Program (NFIP) is the main source of primary flood insurance
coverage in the United States, collecting over $4.6 billion in premiums, fees, and surcharges for
over five million flood insurance policies. This is in contrast to the majority of other property and
casualty risks, such as damage from fire or accidents, which are covered by a broad array of
private insurance companies. One of the primary reasons behind the creation of the NFIP in 1968
was the withdrawal by private insurers from providing flood insurance coverage, leaving flood
victims largely reliant on federal disaster assistance to recover after a flood. While private
insurers have taken on relatively little flood risk, they have been involved in the administration of
the NFIP through sales and servicing of policies and claims.
In recent years, private insurers have expressed increased interest in providing flood coverage.
Advances in the analytics and data used to quantify flood risk along with increases in capital
market capacities may allow private insurers to take on flood risks that they shunned in the past.
Private flood insurance may offer some advantages over the NFIP, including more flexible flood
polices, integrated coverage with homeowners insurance, or lower-cost coverage for some
consumers. Private marketing might also increase the overall amount of flood coverage
purchased, reducing the amount of extraordinary disaster assistance necessary to be provided by
the federal government. Increased private coverage could reduce the overall financial risk to the
NFIP, reducing the amount of NFIP borrowing necessary after major disasters.
Increasing private insurance, however, may have some downsides compared to the NFIP. Private
coverage would not be guaranteed to be available to all floodplain residents, unlike the NFIP, and
consumer protections could vary in different states. The role of the NFIP has historically been
broader than just providing insurance. As currently authorized, the NFIP also encompasses social
goals to provide flood insurance in flood-prone areas to property owners who otherwise would
not be able to obtain it, and to reduce government’s cost after floods. Through flood mapping and
mitigation efforts, the NFIP has tried to reduce the future impact of floods, and it is unclear how
effectively the NFIP could play this broader role if private insurance became a large part of the
flood marketplace. Increased private insurance could also have an impact on the subsidies that are
provided for some consumers through the NFIP.
The 2012 reauthorization of the NFIP (Division F, Title II of P.L. 112-141) included provisions
encouraging private flood insurance; however, various barriers have remained. Legislation passed
the House in the 114th Congress (H.R. 2901) and 115th Congress (H.R. 2874) which would have
attempted to expand the role of private flood insurance; neither bill was taken up by the Senate. In
the 116th Congress, no NFIP legislation advanced past introduction. Two bills were introduced in
the 117th Congress for long-term reauthorization and reform of the NFIP.
The NFIP is currently operating under a short-term reauthorization until September 30, 2023.

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Contacts
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Private Flood Insurance and the National Flood Insurance Program

Introduction
Congress is currently considering long-term reauthorization of the National Flood Insurance
Program (NFIP). Floods are the most common natural disaster in the United States, and all 50
states, plus DC, Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Northern
Mariana Islands have experienced flood events since May 2018.1 The NFIP has paid a total of
nearly $19.03 billion in claims over the past five fiscal years.2
Expanding the role of private insurers, including reinsurers, has been seen by many as an answer
to the variability of the financial position of the NFIP.3 Increasing participation by private insurers
could transfer more flood risk from policyholders to the private insurance sector, as opposed to
transferring the risk to the federal government through the NFIP. In addition to the possible
advantage to the NFIP, the increased availability of flood insurance as private companies enter the
market may benefit households and businesses, as insured flood victims are likely to recover
more quickly and more fully after a flood.
Private insurer interest in directly providing and underwriting flood risk has increased in recent
years. Advances in the analytics and data used to quantify flood risk along with increases in
capital market capacities may allow private insurers to take on flood risks that they shunned in the
past. However, increasing the private sector role in providing flood insurance coverage directly to
consumers may have implications for the operations and fiscal solvency of the NFIP as currently
structured. Increased access to private flood insurance could provide individual policyholders
with a wider choice of coverage and possibly cheaper premiums, but may also lead to variable
consumer protections.
The extent to which private insurance companies participate in the U.S. flood insurance market
represents an area of congressional concern. A number of bills have been introduced to address
issues related to private flood insurance, but no legislation has yet been enacted. The NFIP is
currently operating under its 25th short-term reauthorization, until September 30, 2023.4
This report describes the current role of private insurers in U.S. flood insurance, and discusses
barriers to private sector involvement. The report considers potential effects of increased private
sector involvement in the U.S. flood market, both for the NFIP and for consumers. Finally, the
report outlines the provisions relevant to private flood insurance in House and Senate NFIP
reauthorization bills from the 115th, 116th, and 117th Congresses.
Background5
The NFIP is the main provider of primary flood insurance coverage for residential properties in
the United States, providing nearly $1.3 trillion in coverage for over five million residential flood
insurance policies. In FY2018, the program collected about $3.51 billion in annual premium

1 Email correspondence from FEMA Congressional Affairs staff, August 5, 2019.
2 Email correspondence from FEMA Congressional Affairs staff, December 30, 2020.
3 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 41.
4 P.L. 117-328. For further information on NFIP reauthorization, see CRS Insight IN10835, What Happens If the
National Flood Insurance Program (NFIP) Lapses?, by Diane P. Horn.
5 For more detail on the NFIP, see CRS Report R44593, Introduction to the National Flood Insurance Program
(NFIP), by Diane P. Horn and Baird Webel.
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revenue, $1.09 billion in assessments, fees, and surcharges and $1.04 billion in payments from
private reinsurers.6 In FY2019, the program collected about $3.39 billion in annual premium
revenue and $1.07 billion in assessments, fees, and surcharge, with no payments from private
reinsurers.7 In FY2020, the program collected about $3.51 billion in annual premium revenue and
$1.11 billion in assessments, fees, and surcharge, with no payments from private reinsurers.
Nationally, over 22,000 communities participate in the NFIP.8 The role of the federal government
in flood insurance is in contrast to the majority of other property and casualty risks, such as
damage from fire or accidents, which are covered by a broad array of private insurance
companies. Total direct written premiums for private flood insurance in 2019 totaled $523 billion,
compared to $420 million in 2018 and $390 million in 2017. Over 140 insurers wrote private
flood insurance in 2019, up from 120 insurers in 2018, 90 insurers in 2017, and 50 insurers in
2016.9 Total premiums for private property and casualty insurance in 2018 totaled $611 billion,
with the policies backed by over $2 trillion in assets held by private insurers.10
Objectives of the NFIP
The NFIP has two main policy goals: (1) to provide access to primary flood insurance, thereby
allowing for the transfer of some of the financial risk of property owners to the federal
government; and (2) to mitigate and reduce the nation’s comprehensive flood risk11 through the
development and implementation of floodplain management standards. A longer-term objective
of the NFIP is to reduce federal expenditure on disaster assistance after floods.
As a public insurance program, the NFIP is designed differently from the way in which private-
sector companies provide insurance. As currently authorized, the NFIP also encompasses social
goals to provide flood insurance in flood-prone areas to property owners who otherwise would
not be able to obtain it, and to reduce the government’s cost after floods.12 The NFIP also engages
in many “non-insurance” activities in the public interest: it disseminates flood risk information
through flood maps, requires communities to adopt land use and building code standards in order
to participate in the program, potentially reduces the need for other post-flood disaster aid,
contributes to community resilience by providing a mechanism to fund rebuilding after a flood,
and may protect lending institutions against mortgage defaults due to uninsured losses. The

6 Statistics on the National Flood Insurance Program (NFIP) policy and claims are available from the Federal
Emergency Management Agency (FEMA) website “Policy and Claim Statistics for Flood Insurance,”
at https://www.fema.gov/policy-claim-statistics-flood-insurance; premium and fee data from The Watermark Third
Quarter 2021, https://www.fema.gov/sites/default/files/documents/fema_fima-watermark-FY2021-Q3.pdf.
7 Fee data from The Watermark Third Quarter 2021, https://www.fema.gov/sites/default/files/documents/fema_fima-
watermark-FY2021-Q3.pdf.
8 Detailed information about which communities participate and where is available from the Community Status Book,
found on FEMA’s website at https://www.fema.gov/flood-insurance/work-with-nfip/community-status-book.
9 National Association of Insurance Commissioners (NAIC), Report on Private Flood Insurance Data, April 28, 2020,
provided by NAIC to CRS on October 24, 2020.
10 Premium amounts used are net premiums written and asset amounts are admitted assets from A.M. Best, 2019 Best’s
Rankings: U.S. Property/Casualty - 2018 Financial Results, March 25, 2019.
11 In the context of this report, comprehensive flood risk means that the risk includes both financial risk (i.e., physical
damage to property), and also the risk to human life.
12 See 82 Stat. 573 for text in original statute (Section 1302(c) of P.L. 90-448). This language remains in statute (see 42
U.S.C. §4001(c)).
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benefits of such tasks are not directly measured in the NFIP’s financial results from selling flood
insurance.13
From the inception of the NFIP, the program has been expected to achieve multiple objectives,
some of which may conflict with one another:
 to ensure reasonable insurance premiums for all;
 to have risk-based premiums that would make people aware of and bear the cost
of their floodplain location choices;
 to secure widespread community participation in the NFIP and substantial
numbers of insurance policy purchases by property owners; and
 to earn premium and fee income that, over time, covers claims paid and program
expenses.14
Primary Flood Insurance Through the NFIP
The NFIP offers flood insurance to anyone in a community that chooses to participate in the
program. Flood insurance purchase generally is voluntary, except for property owners who are in
a Special Flood Hazard Area (SFHA)15 and whose mortgage is backed by the federal
government.16 Flood insurance policies through the NFIP are sold only in participating
communities and are offered to both property owners and renters and to residential and non-
residential properties. NFIP policies have relatively low coverage limits, particularly for non-
residential properties or properties in high-cost areas. The maximum coverage for single-family
dwellings (which also includes single-family residential units within a 2-4 family building) is
$100,000 for contents and up to $250,000 for building coverage. The maximum available
coverage limit for other residential buildings is $500,000 for building coverage and $100,000 for
contents coverage, and the maximum coverage limit for non-residential business buildings is
$500,000 for building coverage and $500,000 for contents coverage.
The Mandatory Purchase Requirement
By law and regulation, federal agencies, federally regulated lending institutions, and government-
sponsored enterprises (GSEs)17 must require the property owners in an SFHA to purchase flood
insurance as a condition of any mortgage that these entities make, guarantee, or purchase.18 In

13 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program: Challenges
and Solutions, April 2017, p. 79, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
14 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, p. 3, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-program-
premiums-report-1.
15 A Special Flood Hazard Area (SFHA) is defined by FEMA as an area with a 1% or greater risk of flooding every
year.
16 This includes mortgages from banks insured by the Federal Deposit Insurance Corporation and mortgages backed by
Fannie Mae or Freddie Mac, as well as federal entities such as the Federal Housing Administration and the Department
of Veterans Affairs.
17 Government-Sponsored Enterprises (GSEs) are private companies with congressional charters. Examples of GSEs
providing mortgages that would be affected by the mandatory purchase requirement include the Federal Home Loan
Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).
18 42 U.S.C. §4012a.
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addition to this legal mandatory purchase requirement, lenders may also require borrowers
outside of an SFHA to maintain flood insurance as a means of financially securing the property.
In order to comply with this mandate, property owners may purchase flood insurance through the
NFIP, or through a private company, so long as the private flood insurance “provides flood
insurance coverage which is at least as broad as the coverage” of the NFIP, among other
conditions.19 The mandatory purchase requirement is enforced by the lender, rather than FEMA,
and lenders can be fined up to $2,000 by banking regulators for each failure to require flood
insurance or provide notice.20 Property owners who do not obtain flood insurance when required
may find that they are not eligible for certain types of disaster assistance after a flood.21
Premium Subsidies and Cross-Subsidies
Flood insurance rates in the NFIP generally are directed by statute to be “based on consideration
of the risk involved and accepted actuarial principles,”22 meaning that the rate is reflective of the
true flood risk to the property. However, Congress has directed FEMA not to charge actuarial
rates for certain categories of properties and to offer discounts to other classes of properties.23
FEMA is not, however, provided funds to offset these subsidies and discounts,24 which has
contributed to FEMA’s need to borrow from the U.S. Treasury to pay NFIP claims.
There are three main categories of properties that pay less than full risk-based rates:
 Pre-FIRM: properties that were built or substantially improved before December
31, 1974, or before FEMA published the first Flood Insurance Rate Map (FIRM)
for their community, whichever was later;25
 Newly mapped: properties that are newly mapped into a SFHA on or after April
1, 2015, if the applicant obtains coverage that is effective within 12 months of the
map revision date;26 and

19 42 U.S.C §4012a(b). For additional information on private flood insurance, see CRS Insight IN10450, Private Flood
Insurance and the National Flood Insurance Program (NFIP), by Baird Webel and Diane P. Horn. The “at least as
broad as” requirement is discussed in more detail in the section titled “Flood Insurance Coverage “at Least as Broad as”
the NFIP” in this report.
20 42 U.S.C §4012a(f).
21 For additional information, see CRS Report R44808, Federal Disaster Assistance: The National Flood Insurance
Program and Other Federal Disaster Assistance Programs Available to Individuals and Households After a Flood, by
Diane P. Horn.
22 42 U.S.C. §4014(a)(1).
23 For a full discussion of NFIP subsidies and cross-subsidies, see the section on Pricing and Premium Rate Structure in
CRS Report R44593, Introduction to the National Flood Insurance Program (NFIP), by Diane P. Horn and Baird
Webel, the section on Premiums Subsidies and Cross-Subsidies in CRS Report R46095, The National Flood Insurance
Program: Selected Issues and Legislation in the 116th Congress, by Diane P. Horn and Baird Webel, and the section
on Premium Subsidies and Cross-Subsidies in CRS Report R45999, National Flood Insurance Program: The Current
Rating Structure and Risk Rating 2.0, by Diane P. Horn.
24 Government Accountability Office (GAO), Flood Insurance: Comprehensive Reform Could Improve Solvency and
Enhance Resilience, GAO-17-425, April 2017, p. 17, https://www.gao.gov/products/GAO-17-425.
25 42 U.S.C. §4015(c).
26 §6 of P.L. 113-89, 128 Stat.1028, as codified at 42 U.S.C. §4015(i).
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 Grandfathered: properties that were built in compliance with the FIRM in effect
at the time of construction and are allowed to maintain their old flood insurance
rate class if their property is remapped into a new flood rate class.27
NFIP Reauthorization and Legislation
117th Congress
The NFIP is currently authorized until September 30, 2023.28 Since the end of FY2017, 25 short-
term NFIP reauthorizations have been enacted. Two companion bills were introduced in the 117th
Congress for reform and reauthorization of the NFIP: S. 3128 and H.R. 5802, the National Flood
Insurance Program Reauthorization and Reform Act of 2021. These bills were not considered by
the committees of jurisdiction.
Prior Congresses
The House passed standalone legislation to encourage private insurance in the 114th Congress
(H.R. 2901); however, the Senate did not take up H.R. 2901 in the 114th Congress.
In the 115th Congress, a number of bills were introduced to provide a longer-term reauthorization
of the NFIP as well as make numerous other changes to the program. The House of
Representatives passed H.R. 2874 (The 21st Century Flood Reform Act) by a vote of 237-189 on
November 14, 2017. Among its numerous provisions, H.R. 2874 would have authorized the NFIP
until September 30, 2022.
Three bills were introduced in the Senate that would have reauthorized the expiring provisions of
the NFIP:
 S. 1313 (Flood Insurance Affordability and Sustainability Act of 2017);
 S. 1368 (Sustainable, Affordable, Fair, and Efficient [SAFE] National Flood
Insurance Program Reauthorization Act of 2017);29 and
 S. 1571 (National Flood Insurance Program Reauthorization Act of 2017).
None of these bills were considered by the full Senate in the 115th Congress. Among their other
provisions, S. 1313 would have authorized the NFIP until September 30, 2027; S. 1368 would
have authorized the NFIP until September 30, 2023; and S. 1571 would have authorized the NFIP
until September 30, 2023.
The four reauthorization bills in the 115th Congress differed significantly in the degree to which
they would have encouraged private participation in flood insurance, particularly flood insurance
sold by private companies in competition with the NFIP. In general, legislation passed by the
House was more encouraging of private flood insurance than Senate legislation. In the 115th

27 For a full description, see FEMA, Grandfathering, March 2020, https://www.fema.gov/node/404682.
28 The statute for the NFIP does not contain a comprehensive expiration, termination, or sunset provision for the whole
of the program. Rather, the NFIP has multiple different legal provisions that generally tie to the expiration of key
components of the program. Unless reauthorized or amended by Congress, the following will occur on September 30,
2023: (1) The authority to provide new flood insurance contracts will expire. Flood insurance contracts entered into
before the expiration would continue until the end of their policy term of one year; and (2) The authority for NFIP to
borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion (42 U.S.C. §4016(a)). The most
recent reauthorization of the NFIP is in P.L. 117-328.
29 A similar bill was introduced in the House, H.R. 3285.
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Congress, the House included the same provisions in H.R. 2874 and in an unrelated bill to
reauthorize the Federal Aviation Administration (H.R. 3823). The Senate removed the flood
insurance language from H.R. 3823 before passing it. Reportedly, the provisions relating to
private flood insurance were a particular issue of concern.30 The Senate ultimately did not take up
H.R. 2874 during the 115th Congress. S. 1313 included some similar provisions to H.R. 2874 on
private flood insurance, but S. 1368 and S. 1571 did not.
In the 116th Congress, the House Financial Services Committee completed markup of a bill for
the long-term reauthorization of the NFIP, the National Flood Insurance Program Reauthorization
Act of 2019 (H.R. 3167), and ordered it reported on June 12, 2019.31 H.R. 3167 would have
reauthorized the NFIP until September 30, 2024. One bill was introduced in the Senate, on July
18, 2019, to reauthorize the expiring provisions of the NFIP: the National Flood Insurance
Program Reauthorization and Reform Act of 2019 (S. 2187), with a companion bill in the House,
H.R. 3872.32 The latter two bills were not considered by the committees of jurisdiction. S. 2187
and H.R. 3872 would also have reauthorized the NFIP until September 30, 2024. Details of the
provisions relating to private insurance in the House and Senate bills in the 116th Congress are
described in the Appendix, and Table A-1 relates the provisions in the bills in the 116th Congress
to the issues discussed in this report.
The Current Role of Private Insurers in the NFIP
Private insurers can be involved in the flood insurance market in a number of ways, including (1)
by helping to administer the NFIP; (2) by sharing risk with the NFIP as a reinsurer; or (3) by
taking on risk themselves as a primary insurer, where the insurer contracts directly with a
consumer. Since 1983, private insurers have played a major role in administering the NFIP,
including selling and servicing policies and adjusting claims, but they largely have not been
underwriting flood risk themselves.33 Instead, the NFIP retains the direct financial risk of paying
claims for these policies. The NFIP has purchased reinsurance since 2016, thus transferring some
of the flood risk to the private sector.
Servicing of Policies and Claims Management
While FEMA provides the overarching management and oversight of the NFIP, the majority of
the day-to-day operation of the NFIP is handled by private companies. This includes marketing,

30 See, for example, Shaun Courtney, “‘Hard to Envision’ Senate Democrats Blocking FAA Extension, Thune Says,”
Bloomberg BNA, September 27, 2017, Daily Report for Executives,
Thune wants to see the Senate pass the House bill under unanimous consent, but committee ranking
member Bill Nelson (D-Fla.) made that sound unlikely. “That will not get passed here,” Nelson
said Sept. 26 in response to Bloomberg BNA’s inquiry about the House’s flood insurance
provision.… Senator Sherrod Brown (D-Ohio), ranking member on the Banking, Housing, and
Urban Affairs Committee, which has jurisdiction over flood insurance proposals, said the House
provision was unacceptable. “We’re not going to do it,” Brown said. “This would undermine all of
our flood insurance efforts. It will cause all kinds of cherry-picking by private insurance.”
31 See H.Rept. 116-262, Part 1, https://www.congress.gov/116/crpt/hrpt262/CRPT-116hrpt262.pdf.
32 H.R. 3872 was introduced on July 22, 2019.
33 Underwriting risk refers to the potential loss to an insurer or reinsurer. An insurer takes on this risk in return for a
premium, and promises to pay an agreed amount in the event of a loss. See NAIC, Glossary of Insurance Terms,
http://www.naic.org/consumer_glossary.htm#U.
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selling and writing policies, and all aspects of claims management.34 FEMA has established two
different arrangements with private industry. The first is the Direct Servicing Agent, or DSA,
which operates as a private contractor, selling NFIP policies on behalf of FEMA for individuals
seeking to purchase flood insurance policies directly from the NFIP.35 The DSA also handles the
policies of severe repetitive loss properties.36 The second arrangement is the Write-Your-Own
(WYO) program, where private insurance companies are paid to issue and service NFIP policies.
With either the DSA or WYO program, the NFIP retains the actual financial risk of paying claims
for the policy, and the policy terms and premiums are the same. Approximately 13% of the total
NFIP policy portfolio is managed through the DSA and 87% of NFIP policies are sold by the 57
companies participating in the WYO program.37
Companies participating in the WYO program are compensated through a variety of methods, but
this compensation is not directly based on the costs incurred by the WYOs. In the Biggert-Waters
Flood Insurance Reform Act of 2012 (Division F, Title II of P.L. 112-141, hereinafter BW-12),
Congress required FEMA to develop and issue a rulemaking on a “methodology for determining
the appropriate amounts that property and casualty insurance companies participating in the
WYO program should be reimbursed for selling, writing, and servicing flood insurance policies
and adjusting flood insurance claims on behalf of the National Flood Insurance Program.”38 This
rulemaking was required within a year of enactment of BW-12. FEMA published an Advanced
Notice of Proposed Rulemaking to revise the compensation structure of the WYOs on July 8,
2019.39 The comment period closed on September 6, 2019. Until the analysis is complete, it is
difficult to ascertain how much it actually costs WYO companies to administer the NFIP policies,
or the WYO’s profit margins (if any).
In the 115th Congress, H.R. 2874 would have capped the allowance paid to the WYOs at 27.9% of
premiums, while S. 1368 would have capped the allowance at 22.46%.
In the 116th Congress, Section 302 of S. 2187 would have established that the total amount of
reimbursement paid to WYO companies could not be greater than 22.46% of the aggregate
amount of premiums charged by the company. This section would also have required FEMA to
ensure that the commission paid by a WYO company to agents of the company would not be less
than 15%. Section 304 of S. 2187 would require FEMA, within 12 months of enactment, to
develop a schedule to determine the actual costs of WYO companies and reimburse the WYO
companies only for the actual costs of the service or products. It would have required that all
reimbursements made to WYO companies be made public, including a description of the product
or service provided to which the reimbursement pertains. Section 405 of S. 2187 would have
required FEMA to establish penalties for underpayment of claims by WYO companies that are

34 See primarily 42 U.S.C. §4081 and §4018, and 44 C.F.R. Part 62.
35 The current Direct Servicing Agent is a company called National Flood Services., who was awarded the contract in
October 2020. See https://nationalfloodservices.com/press/nfs-awarded-nfip-direct-service-provider-contract/https://
content.govdelivery.com/accounts/USDHSFEMA/bulletins/1c9da05.
36 Severe repetitive loss properties are those that have incurred four or more claim payments exceeding $5,000 each,
with a cumulative amount of such payments over $20,000; or at least two claims with a cumulative total exceeding the
value of the property. See 42 U.S.C. §4014(h) and 44 C.F.R. §79.2(h).
37 Email correspondence from FEMA Congressional Affairs staff, March 1, 2019. A list of companies participating in
the WYO program is available at https://nfipservices.floodsmart.gov/wyo-program-list.
38 §100224 of P.L. 112-141, 126 Stat. 936.
39 Federal Emergency Management Agency, “National Flood Insurance Program (NFIP); Revisions to Methodology for
Payments to Write Your Own (WYO) Companies,” 84(130) Federal Register 32,371-32,379, July 8, 2019, and Federal
Emergency Management Agency, “National Flood Insurance Program (NFIP); Revisions to Methodology for Payments
to Write Your Own (WYO) Companies; Correction,” 84(170) Federal Register 45,933-45,934, September 3, 2019.
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not less than the penalty for overpayment of a claim. Both H.R. 3872 and S. 2187 contained
provisions giving FEMA the authority to terminate a WYO contract under certain conditions,
such as fraud or other conduct detrimental to the NFIP.
Reinsurance
In the Homeowner Flood Insurance Affordability Act of 2014 (P.L. 113-89, HFIAA), Congress
revised the authority of FEMA to secure reinsurance40 for the NFIP from the private reinsurance
and capital markets.41 The purchase of private market reinsurance reduces the likelihood of
FEMA needing to borrow from the Treasury to pay claims. In addition, as the U.S. Government
Accountability Office (GAO) noted, reinsurance could be beneficial because it allows FEMA to
price some of its flood risk up front through the premiums it pays to the reinsurers rather than
borrowing from Treasury after a flood.42 From a risk management perspective, using reinsurance
to cover losses in only the more extreme years could help the government to manage and reduce
the volatility of its losses over time.
Transfer of risk to the private sector through reinsurance, however, is unlikely to lower the overall
cost of the NFIP because reinsurers understandably charge FEMA premiums to compensate for
the risk they assume. The primary benefit of reinsurance is to transfer and manage risk rather than
to reduce the NFIP’s long-term fiscal exposure.43 For example, a reinsurance scenario which
would provide the NFIP with $16.8 billion coverage (sufficient for Katrina-level losses) could
cost an estimated $2.2 billion per year.44 Such a reinsurance premium, however, would be a large
portion of the total premiums paid into the NFIP, approximately two-thirds of the current
premium amounts. Devoting such a large portion of premiums to reinsurance could leave
insufficient funds for paying claims outside of large disasters,45 or for covering the other purposes
for NFIP funds, such as flood mitigation, mapping, and improving NFIP rating structures.
Reinsurance has been purchased by FEMA through two different mechanisms, “traditional”
reinsurance and reinsurance backed by catastrophe bonds.46 The traditional reinsurance has been
purchased from a varied group of reinsurance companies with each reinsurer bearing part of the
risk. The catastrophe bond reinsurance is facilitated by a single company, with the risk then
transferred to capital market investors who purchase the bonds. The specifics of each reinsurance
purchase has varied, but in general, the reinsurance has been designed to pay a certain percentage
of the losses from a single, large scale event, with a higher percentage if losses are higher.47
Coverage has typically started after $4 billion in losses, a loss level that has only been reached by

40 Reinsurance is defined as a transaction between a primary insurer and another licensed (re)insurer where the
reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer. See NAIC,
Glossary of Insurance Terms, http://www.naic.org/consumer_glossary.htm#R.
41 See §10 of P.L. 113-89, 128 Stat. 1025, as codified at 42 U.S.C. §4081(e).
42 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 19, https://www.gao.gov/products/GAO-17-425.
43 Ibid.
44 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 171.
45 The NFIP reinsurance purchases have been designed to cover claims for only one large flood, and smaller flood
claims will continue to be paid from NFIP premiums.
46 For more details see FEMA, National Flood Insurance Program (NFIP) Reinsurance Program,
https://www.fema.gov/flood-insurance/work-with-nfip/reinsurance and CRS Insight IN10965, The National Flood
Insurance Program (NFIP), Reinsurance, and Catastrophe Bonds, by Diane P. Horn and Baird Webel.
47 For example, the 2020 traditional reinsurance purchase covered 10.25% of NFIP losses from $4 billion to $6 billion,
34.68% of losses from $6 billion to $8 billion, and $21.80% of losses from $8 billion to $10 billion.
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the NFIP in three events—Hurricane Katrina, Superstorm Sandy, and Hurricane Harvey. Table 1
outlines the various reinsurance purchases, including the dates in force, type of reinsurance,
amount of coverage, premiums paid by FEMA, and claims paid to FEMA.
In the 115th Congress, H.R. 2874, S. 1313, and S. 1571 all contained provisions that would have
required or encouraged the NFIP to transfer a portion of its risk to the private reinsurance market.
In the 116th Congress, H.R. 3167, Section 406, would have required FEMA annually to evaluate
ceding a portion of the risk of the NFIP to the private reinsurance or capital markets, if the
Administrator determines that the rates and terms are reasonable and doing so would further the
development and maintenance of a sound financial framework for the NFIP. The Senate bill in the
116th Congress, S. 2187, did not contain any provisions related to reinsurance. In the 117th
Congress, companion bills S. 3128 and H.R. 5802 did not contain any provisions related to
reinsurance.
Table 1. NFIP Reinsurance Purchases
($ billions)
To Date
Coverage
Coverage
Premiums
Claims Paid
Date
Type
Amount
Levels
Paid by FEMA
to FEMA
CY2017
Traditional
$1.042
$4-8
$0.150
$1.042
CY2018
Traditional
$1.46
$4-8
$0.235
$0
August 2018-
Catastrophe
$0.5
$5-10
$0.188a
$0
July 2021
Bond
CY2019
Traditional
$1.32
$4-10
$0.186
$0
April 2019-
Catastrophe
$0.3
$6-8
$0.107b

April 2022
Bond
CY2020
Traditional
$1.33
$4-10
$0.205
$0
February
Catastrophe
$0.4
$6-10
$0.101c
$0
2020-
Bond
February
2023
CY2021
Traditional
$1.46
$4-10
$0.195
$0
February
Catastrophe
$0.575
$6-9
$0.079d
$0
2021-
Bond
February
2024
Source: FEMA websites at https://www.fema.gov/flood-insurance/work-with-nfip/reinsurance and information
provided by FEMA Congressional Affairs staff, November 15, 2021.
a. Premiums of $62 mil ion in each of first and second years, $63.75 mil ion in third year.
b. Premiums of $32 mil ion in first year, $38 mil ion in second year, $37.2 mil ion in third year.
c. Premiums of $50.28 mil ion in first year and $50.88 mil ion in second year.
d. Premium of $79.44 mil ion in the first year.
The NFIP has claimed on reinsurance once, after the losses experienced after Hurricane Harvey,
which resulted in over $9 billion paid by the NFIP to policyholders and triggered the full claim of
$1.042 billion on the 2017 reinsurance. To date, FEMA has not claimed on any of the catastrophe
bonds.
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Private Flood Insurance Outside the NFIP:
Issues and Barriers
One of the reasons that Congress created the NFIP in 1968 was the general unavailability of flood
insurance from private insurers. Private flood insurance was offered between 1895 and 1927, but
losses incurred from the 1927 Mississippi River floods and additional flood losses in 1928 led
most insurers to stop offering flood policies.48 Private flood insurance companies largely
concluded that flood peril was uninsurable because of the catastrophic nature of flooding, the
difficulty of determining accurate rates, the risk of adverse selection,49 and the concern that they
could not profitably provide risk-based flood coverage at a price that consumers felt they could
afford.50
Currently, the private flood insurance market most commonly provides commercial coverage,
secondary coverage above the NFIP maximums, or coverage in the lender-placed market.51 The
2018 premiums for private flood insurance as reported to the National Association of Insurance
Commissioners (NAIC)52 totaled $644 million, up from $589 million in 2017 and $376 million in
2016,53 compared to the $3.5 billion total amount of NFIP premiums. In general, the private flood
market tends to focus on high-value properties, which command higher premiums and therefore
the extra expense of flood underwriting can be more readily justified.54
Currently few private insurers compete with the NFIP in the primary residential flood insurance
market. One illustration of this is that the NAIC only began systematically collecting separate
data on private flood insurance in 2016.
As discussed in the following sections, private insurers have identified a number of potential
barriers to more widespread private sector involvement in providing flood insurance. Increasing
private insurance may present a number of issues for the NFIP and for consumers.

48 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1, 2015, p. 23, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-
program-premiums-report-1.
49 Adverse selection is the phenomenon whereby persons with a higher than average probability of loss seek greater
insurance coverage than those with less risk. See National Association of Insurance Commissioners (NAIC), Glossary
of Insurance Terms, http://www.naic.org/consumer_glossary.htm.
50 See GAO, Flood Insurance: Strategies for Increasing Private Sector Involvement, GAO-47-127, January 2014, p. 6,
https://www.gao.gov/products/GAO-14-127, and Caroline Kousky and Howard Kunreuther, The National Flood
Insurance Program: Yesterday, Today and Tomorrow, NAIC, Center for Insurance Policy and Research Study Series
2017-1: Flood Risk and Insurance, Kansas City, MO, April 2017, pp. 23-45, http://www.naic.org/documents/
cipr_study_1704_flood_risk.pdf.
51 The lender-placed or forced-place market is where lenders can force-place flood insurance on properties that are out
of compliance with the mandatory purchase requirement.
52 The NAIC is an organization of the state regulators of insurance and, among other things, collects the data that the
regulators require to be reported by insurance companies.
53 Statistics provided by the National Association of Insurance Commissioners to CRS. They do not include coverage
written in the surplus lines marketplace by non-U.S. insurers.
54 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 32.
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Flood Insurance Coverage “at Least as Broad as” the NFIP
In BW-12, Congress explicitly provided for private flood insurance to fulfill the mandatory
purchase mortgage requirement as long as the private flood insurance “provides flood insurance
coverage which is at least as broad as the coverage” of the NFIP, among other conditions.55
Implementation of this requirement has proved challenging. The crux of the implementation issue
is in answering the question of who would evaluate whether specific policies met the “at least as
broad as” standard and what criteria would be used in making this evaluation. Some lending
institutions feel that they lack the necessary technical expertise to evaluate whether a flood
insurance policy meets the definition of private flood insurance set forth in BW-12.56
The responsible federal agencies57 issued two separate Notices of Proposed Rulemaking (NPRM)
on the question, the first in October 2013,58 and the second in November 2016.59 On February 12,
2019, the agencies announced a final rule implementing this BW-12 requirement.60 Of particular
note, the agencies indicate the rule
 “allows institutions to rely on an insurer’s written assurances in a private flood
insurance policy stating the criteria are met; [and]
 clarifies that institutions may, under certain conditions, accept private flood
insurance policies that do not meet the Biggert-Waters Act criteria.”61
This second point may seem unusual, because BW-12 included a specific definition of private
flood insurance, while the agencies indicate that the rule allows acceptance of private flood
insurance that does not meet this statutory definition. In creating the exception that allows private
flood insurance that does not follow the statutory definition of “private flood insurance,” the
agencies relied on the usage of the more general term “flood insurance” in 42 U.S.C.
4012a(b)(1)(A) combined with the perceived congressional intent to promote private insurance in
BW-12.62

55 42 U.S.C §4012a(b).
56 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards, Proposed
Rule,” vol. 78, no. 201 Federal Register 65113, October 30, 2013.
57 Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Farm Credit Administration, and National Credit Union Administration.
58 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards, Proposed
Rule,” vol. 78, no. 201, Federal Register 65108-65144, October 30, 2013.
59 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards—Private Flood
Insurance,” vol. 81, no. 215, Federal Register 78063-78080, November 7, 2016.
60 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards—Private Flood
Insurance,” vol. 84, no. 34, Federal Register 4953-4975, February 20, 2019.
61 Federal Reserve System, Farm Credit Administration, Federal Deposit Insurance Corporation, National Credit Union
Administration, and Office of the Comptroller of the Currency, “New Rule Covers Private Flood Insurance,” press
release, February 12, 2019, at https://www.occ.gov/news-issuances/news-releases/2019/nr-ia-2019-15.html.
62 For the complete agency rationale, see the section entitled “Discretionary Acceptance” in Department of the
Treasury, Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit Administration, National
Credit Union Administration, “Loans in Areas Having Special Flood Hazards—Private Flood Insurance,” vol. 84, no.
34, Federal Register 4959-4960, February 20, 2019.
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The rule took effect on July 1, 2019. Press reports described it as generally welcomed by the
banking industry,63 but it is unclear to what extent this new rule will encourage private flood
insurance or whether additional legislative changes might be needed if Congress seeks to further
encourage development of the private flood insurance market.
In the 115th Congress, H.R. 2874 and S. 1313 included provisions that would have revised the
definition of private flood insurance, striking existing statutory language requiring private flood
insurance to provide coverage “at least as broad as the coverage” provided by the NFIP in order
to meet the mandatory purchase requirements. Instead, the new definition would have relied on
whether the insurance policy and insurance company were in compliance with the laws and
regulations in the state where the insurance was purchased. S. 1368 and S. 1571 had no similar
provisions. Neither of the bills in the 116th Congress included any provisions related to the
definition of private flood insurance.
Continuous Coverage
An associated issue is that of continuous coverage, which is required for property owners to retain
any subsidies or cross-subsidies in their NFIP premium rates. Under existing law, if an NFIP
policyholder allows their policy to lapse, any subsidy that they currently receive would be
eliminated immediately.64 Unless legislation specifically allows private flood insurance to count
for continuous coverage, a borrower may be reluctant to purchase private insurance if doing so
means they would lose their subsidy should they later decide to return to NFIP coverage.
In the 115th Congress, H.R. 2874 included a provision that would have specified that if a property
owner purchases private flood insurance and decides then to return to the NFIP, they would be
considered to have maintained continuous coverage. S. 1313 included a provision to allow private
flood insurance to count as continuous coverage. S. 1368 and S. 1571 had no similar provisions.
In the 116th Congress, Section 401 of H.R. 3167 would have considered any period during which
a property is covered by a flood insurance policy, either through the NFIP or a private company,
to be a period of continuous coverage. S. 2187 did not contain any provisions related to
continuous coverage.
The “Non-Compete” Clause
Before FY2019, the Write Your Own carriers, private insurers who sell and service NFIP policies,
were restricted in their ability to sell flood insurance policies on their own behalf while also
participating as a WYO, due to a “non-compete” clause contained in the standard NFIP
contracts.65 These contracts governing the WYO companies’ participation in the NFIP restricted
the WYO carriers from selling their own standalone private flood products.66 A non-compete
clause would require WYO companies to decide whether to offer private flood insurance policies
in their own right or to act as WYO carriers, thus potentially limiting the size of the private flood
market. In the 115th Congress, H.R. 2874 would have eliminated the non-compete clause in place

63 See, for example, Sinnock, Bonnie, “Banks Claim Victory in New Private Flood Insurance Rule,” American Banker,
February 11, 2019.
64 As required by §100205(a)(1)(B) of BW-12 (P.L. 112-141, 126 Stat. 917), only for NFIP policies that lapsed in
coverage as a result of the deliberate choice of the policyholder.
65 Details of the FY2021 WYO company arrangements are available at https://www.fema.gov/sites/default/files/2020-
10/fema_fy-21-wyo-financial-subsidy-arrangement_october-2020.pdf.
66 GAO, Flood Insurance: Potential Barriers Cited to Increased Use of Private Insurance, GAO-16-611, July 14,
2016, p. 31, https://www.gao.gov/assets/680/678414.pdf.
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at the time, while S. 1313 would have provided temporary authorization for WYOs to sell private
flood insurance for certain types of properties,67 with a follow-up study by FEMA to determine if
the authorization should be made permanent.
The CBO cost estimate of H.R. 287468 considered the impact of eliminating the WYO companies’
non-compete agreement. CBO estimated that, over the 2017-2027 period, holders of about
690,000 properties that, under existing law, would have been purchased under the NFIP would
instead choose to buy private flood insurance to cover those properties if H.R. 2874 were enacted.
CBO did not expect any property owners who are subsidized by the NFIP to be among those
leaving the program.69 CBO estimated that eliminating the non-compete clause and making NFIP
data publically available would lead to an increase in spending of $39 million for the 2018-2022
period and $393 million for the 2018-2017 period.70
FEMA implemented changes in the standard WYO contracts for FY2019 removing the
restrictions on WYO companies offering private flood insurance, while maintaining requirements
that such private insurance lines remain entirely separate from a WYO company’s NFIP
insurance business.71 The non-compete clause has again been excluded from the WYO
agreements for FY202072 and FY2021.73 This action removes the non-compete clause without
legislation, although FEMA in the future would retain the authority to reinstate the non-compete
clause.
NFIP Subsidized Rates
FEMA’s subsidized rates are often seen as one of the primary barriers to private sector
involvement in flood insurance.74 However, even without the subsidies mandated by law, the
NFIP’s definition of full-risk rates differs from that of private insurers. Whereas the NFIP’s full-
risk rates must incorporate expected losses and operating costs, a private insurer’s full-risk rates
must also incorporate a profitable return on capital. As a result, even those NFIP policies which
are considered to be actuarially sound from the perspective of the NFIP may still be underpriced
from the perspective of private insurers.75 In order to make the flood insurance market attractive,

67 Non-residential properties, severe repetitive loss properties, business properties, or any property that has incurred
flood-related damage in which the cumulative amount of payments equaled or exceeded the fair market value of the
property.
68 Congressional Budget Office, Cost Estimate. H.R. 2874, 21st Century Flood Reform Act, Washington, DC,
September 8, 2017, pp. 1-13, https://www.cbo.gov/publication/53088.
69 Ibid., p. 9.
70 Ibid., p. 5.
71 FEMA, “National Flood Insurance Program (NFIP); Assistance to Private Sector Property Insurers, Notice of FY
2019 Arrangement,” 83(52) Federal Register 11772-11778, March 16, 2018.
72 FEMA, Federal Insurance and Mitigation Administration, FY2020 Financial Assistance/ Subsidy Arrangement,
October 1, 2019, https://www.fema.gov/sites/default/files/2020-05/FY2020-WYO-Financial-Assistance-Subsidy-
Arrangement.pdfhttps://www.fema.gov/media-library-data/1572968146685-72df1f4c423446afef8104ba79ee81c3/
FY2020-WYO-Financial-Assistance-Subsidy-Arrangement.pdf.
73 FEMA, Federal Insurance and Mitigation Administration, FY2021 Financial Assistance/ Subsidy Arrangement,
October 1, 2020, https://www.fema.gov/sites/default/files/2020-10/fema_fy-21-wyo-financial-subsidy-
arrangement_october-2020.pdf.
74 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience, GAO-17-425,
April 2017, p. 34, https://www.gao.gov/products/GAO-17-425.
75 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 58.
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private insurers would want to be able to charge premium rates that reflect the full estimated risk
of potential flood losses while still allowing the companies to make a profit. A reformed NFIP
rate structure could have the effect of encouraging more private insurers to enter the primary
flood market because NFIP full-risk based rates would be closer to the rates that private insurers
would likely charge; however, this could lead to higher rates for households.
In the 115th Congress, H.R. 2874 would have phased out the pre-FIRM subsidy for primary
residences at a rate of 6.5%-15% (compared to the current rate of 5%-18%),76 in a staged manner.
In the first year after enactment, the minimum rate increase would have been 5%; in the second
year after enactment, the minimum rate increase would have been 5.5%; and in the third year of
enactment, the minimum rate increase would have been 6%. The phaseout of the pre-FIRM
subsidy for other categories of properties77 would have remained at 25%. The Senate bills in the
115th Congress did not contain any provisions related to premium rate subsidies. In the 116th
Congress, H.R. 3167 would not have changed the rates at which subsidies can be phased out. S.
2187, Section 102, would have prohibited FEMA from increasing the amount of covered costs
above 9% per year on any policyholder during the five-year period beginning on the date of
enactment. Covered costs include premiums, surcharges (including the surcharge for ICC
coverage and the HFIAA surcharge), and the Federal Policy Fee. This would have limited the rate
of increase of covered costs for all categories of policies, not just policies for primary residences,
and would be particularly significant for those policies where the pre-FIRM subsidy is currently
being phased out at 25% per year.
FEMA introduced a redesigned risk rating system for the NFIP, known as Risk Rating 2.0.78 The
new premium rates went into effect for new NFIP policies on October 1, 2021, and took effect for
current policyholders on April 1, 2022. Premiums under Risk Rating 2.0 reflect an individual
property’s risk and reflect more types of flood risk in rates. Premiums are calculated based on the
specific features of an individual property, including structural variables such as the foundation
type of the structure, the height of the lowest floor of the structure relative to base flood elevation,
and the replacement cost value of the structure. Risk Rating 2.0 incorporates a broader range of
flood frequencies and sources than the current rating system, as well as geographical variables
such as the distance to water, the type and size of nearest bodies of water, and the elevation of the
property relative to the flooding source. Risk Rating 2.0 continues the overall policy of phasing
out NFIP subsidies, but will not be able to increase rates annually beyond the limitations on
annual premium increases which are set in statute.79 Risk Rating 2.0 will not eliminate the three
categories of properties which pay less than the full risk-based rates, nor the process of phasing
out subsidies which began with BW-12. In general, Risk Rating 2.0 is expected to lead to the
reduction of cross-subsidies between NFIP policyholders, and the eventual elimination of
premium subsidies and cross-subsidies once all properties are paying the full risk-based rate. This
should bring NFIP premiums closer to the premiums of private insurers and could potentially
increase competition.

76 For a discussion of the rates at which NFIP subsidies can be phased out, see the section on Pricing and Premium Rate
Structure in CRS Report R44593, Introduction to the National Flood Insurance Program (NFIP), by Diane P. Horn
and Baird Webel.
77 Non-primary residences, non-residential properties, severe repetitive loss properties, properties with substantial
cumulative damage, and properties with substantial damage or improvement after July 6, 2012.
78 For additional information on Risk Rating 2.0, see CRS Report R45999, National Flood Insurance Program: The
Current Rating Structure and Risk Rating 2.0, by Diane P. Horn.
79 42 U.S.C. §4015(e).
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Regulatory Uncertainty
As addressed above, the rules on the acceptance of private insurance for the mandatory purchase
requirement, and whether or not private flood insurance would count for continuous coverage,
have had a significant impact on the market potential for private insurers.80 Another driver of
private sector concern is regulatory uncertainty at the state level. The role of state regulators
would increase in a flood insurance market with increased private sector involvement, which
could increase the burden of oversight. The involvement of 56 state and territorial insurance
regulators is likely to add complexity and additional costs for insurers, lenders, or property
owners.81 For example, some private insurers cited the intervention of state regulators in
controlling rates for wind insurance in Florida as a reason for withdrawing from that market.82
However, this could also lead to the development of state-specific insurance solutions, which
might better suit local social and economic conditions.83 In the 115th Congress, H.R. 2874 and S.
1313 referenced state laws and regulations in their definition of private flood insurance that could
meet the mandatory purchase requirements. Neither of the bills in the 116th Congress included
any provisions related to state laws or regulation of private flood insurance.
Ability to Assess Flood Risk Accurately
Many insurers view the lack of access to NFIP data on flood losses and claims as a barrier to
more private companies offering flood insurance. It is argued that increasing access to past NFIP
claims data would allow private insurance companies to better estimate future losses and price
flood insurance premiums, and ultimately to determine which properties they might be willing to
insure.84 However, FEMA’s view is that the agency would need to address privacy concerns in
order to provide property level information to insurers, because the Privacy Act of 197485
prohibits FEMA from releasing policy and claims data which contain personally identifiable
information. Private insurers have also suggested that better flood risk assessment tools such as
improved flood maps and inland and storm surge models are needed in order to price risks at the
individual and portfolio level.86 In the 115th Congress, H.R. 2874 would have required FEMA to
make all NFIP claims data publicly available in a form that does not reveal personally identifiable
information, while S. 1313 would have authorized FEMA to sell or license individual claims data
while requiring FEMA to make aggregate claims data available. In the 116th Congress, H.R. 3167,
Section 404, would have allowed FEMA to provide current and historical property-specific
information on flood insurance program coverage, flood damage assessments, and payment of

80 See FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options
for Privatizing the NFIP, August 13, 2015, p. 62; and GAO, Flood Insurance: Potential Barriers Cited to Increased
Use of Private Insurance, GAO-16-611, July 14, 2016, pp. 26-29, https://www.gao.gov/assets/680/678414.pdf.
81 Ibid., p. 63.
82 Ibid., p. 105.
83 Ibid., p. 41.
84 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program: Challenges
and Solutions, April 2017, p. 60, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
85 P.L. 93-579, 5 U.S.C. §552a, as amended.
86 See, for example, GAO, Flood Insurance: Strategies for Increasing Private Sector Involvement, 14-127, January 2,
2014, pp. 10-11, https://www.gao.gov/products/GAO-14-127; FEMA, National Flood Insurance Program Report to
Congress on Reinsuring NFIP Insurance Risk and Options for Privatizing the NFIP, August 13, 2015, p. 61; and Albert
Kuller and Eleanor Gibson, After the Storms: Harvey, Irma and Maria: Lessons Learned, Lloyds, Market Insight
Report 2018, May 24, 2018, pp. 1-30, https://www.lloyds.com/news-and-risk-insight/risk-reports/library/natural-
environment/afterthestorms.
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claims to private insurers, on the condition that private insurers provide the same information to
FEMA, homeowners and home buyers. S. 2187, Section 305, would have required FEMA to
report on the feasibility of selling or licensing the use of historical structure-specific NFIP claims
data to non-governmental entities, while reasonably protecting policyholder privacy.
Adequate Consumer Participation
Insurers need sufficient consumer participation to manage and diversify their risk exposure. Many
private insurers have expressed the view that broader participation in the flood insurance market
would be necessary to address adverse selection and maintain a sufficiently large risk pool.87 A
long-standing objective of the NFIP has been to increase purchases of flood insurance policies,
and this objective was the motivation for introducing the mandatory purchase requirement.
Despite the mandatory purchase requirement, not all covered mortgages carry the insurance as
dictated, and no up-to-date data on national compliance rates with the mandatory purchase
requirement are available. A 2006 study commissioned by FEMA found that compliance with this
mandatory purchase requirement may be as low as 43% in some areas of the country (the
Midwest), and as high as 88% in others (the West).88 A 2017 study of flood insurance in New
York City found that compliance with the mandatory purchase requirement by properties in the
SFHA with mortgages increased from 61% in 2012 to 73% in 2016.89 The escrowing of NFIP
insurance premiums, which began in January 2016, may increase compliance with the mandatory
purchase requirement more widely, but no data are yet available.
The mandatory purchase requirement could potentially be expanded to more (or all) mortgage
loans made by federally regulated lending institutions for properties in communities participating
in the NFIP.90 Another possible option would be to require all properties within the SFHA to have
flood insurance, not just those with federally backed mortgages.91 Consumer participation could
also be increased if the federal government were to mandate that homeowners’ insurance policies
include flood coverage or require all homeowners to purchase flood insurance.92 All four 115th
Congress bills contained provisions for some form of study to assess the compliance with the
mandatory purchase requirement. H.R. 2874 would also have increased civil penalties on lenders
for failing to enforce the mandatory purchase requirement. In the 116th Congress, both H.R. 3167,
Section 408, and S. 2187, Section 108, would have required GAO to determine the percentages of
properties with federally backed mortgages located in SFHAs that satisfy the mandatory purchase

87 GAO, Flood Insurance: Strategies for Increasing Private Sector Involvement, 14-127, January 2, 2014, p. 14,
https://www.gao.gov/products/GAO-14-127.
88 Lloyd Dixon, Noreen Clancy, and Seth A. Seabury, et al., The National Flood Insurance Program’s Market
Penetration Rate: Estimates and Policy Implications, RAND Corporation, prepared as part of the Evaluation of the
National Flood Insurance Program, February 2006, p. 23, https://www.rand.org/content/dam/rand/pubs/
technical_reports/2006/RAND_TR300.pdf.
89 Lloyd Dixon, Noreen Clancy, and Benjamin M. Miller, et al., The Cost and Affordability of Flood Insurance in New
York City: Economic Impacts of Rising Premiums and Policy Options for One- to Four- Family Homes, Rand
Corporation, RAND RR1776, Santa Monica, CA, April 2017, pp. 15-18, https://www.rand.org/pubs/research_reports/
RR1776.html.
90 NFIP, Report to Congress on Reinsuring NFIP Insurance Risk and Options for Privatizing the NFIP, Appendix C:
Flood Insurance Risk Study: Options for Privatizing the NFIP, August 13, 2015, p. 86.
91 Association of State Floodplain Managers, Inc., Rethinking the NFIP, ASFPM Comments on NFIP Reform, January
11, 2011, p. 5, https://www.floods.org/whats-new/rethinking-the-nfip-comments-from-asfpm/.
92 GAO, Flood Insurance: Strategies for Increasing Private Sector Involvement, 14-127, January 2, 2014, p. 22,
https://www.gao.gov/products/GAO-14-127.
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requirement, and the percentage of properties with federally backed mortgages located in the 500-
year floodplain93 that would satisfy the mandatory purchase requirement if the mandatory
purchase requirement applied to such properties. Both bills would also have required GAO to
conduct a study to address how to increase participation rates through programmatic and
regulatory changes.
Potential Effects of Increased Private Sector
Involvement in the Flood Market
Increased Consumer Choice
Current NFIP policies offer a relatively limited array of coverages, particularly compared to what
is available in private markets for similar insurance against perils other than floods. Private
insurance companies could potentially compete with the NFIP by offering coverage not available
under the NFIP, such as business interruption insurance, living expenses while a property is being
repaired, basement coverage, coverage of other structures on a property, and/or by offering
policies with coverage limits higher than the NFIP. The NFIP currently also has a 30-day waiting
period in almost all cases before the insurance coverage goes into effect,94 whereas private
insurance companies may have a shorter waiting period. Private companies could also offer flood
coverage as an add-on to a standard homeowners’ policy, which could eliminate the current
problem of distinguishing between flood damage (which is covered by the NFIP) and wind
damage (which is often covered by standard homeowners’ insurance). Unlike the NFIP, private
flood insurance companies may also issue a policy without necessarily requiring elevation
certificates, perhaps by using new technology to measure the elevation of individual structures.
Cheaper Flood Insurance
Since some properties receive lower NFIP rates due to cross subsidies from other NFIP
policyholders, it seems likely that some of the non-subsidized NFIP policyholders would be able
to obtain less expensive flood insurance from private insurers. Private insurers may also be able
to offer premiums more closely tied to individual risks than the NFIP currently does, which would
provide lower premiums for some policyholders. Quantifying the potential savings for some
policyholders from private insurance is, however, difficult, as the amount and extent of cross-
subsidization within the NFIP is not fully known. One example of an attempt to provide estimates
of NFIP versus private insurance is a modeling exercise carried out by two private companies,
Milliman and KatRisk, which looked at premiums for single-family homes in Louisiana, Florida,
and Texas. Their modeling suggested that 77% of single-family homes in Florida, 69% in
Louisiana, and 92% in Texas would pay less with a private policy than with the NFIP; however,
14% in Florida, 21% in Louisiana, and 5% in Texas would pay over twice as much.95 Milliman
did not provide any details of the coverage offered by these private policies, nor the basis on
which their figures were estimated.

93 The 500-year floodplain is defined by FEMA as an area with a 0.2% or greater risk of flooding every year.
94 See FEMA, Flood Insurance Manual, Before You Start, Revised April 2021, pp. 2-11 to 2-14,
https://www.fema.gov/sites/default/files/documents/fema_nfip-all-flood-insurance-manual-apr-2021.pdf.
95 Nancy P. Watkins, Could Private Flood Insurance Be Cheaper Than the NFIP? Milliman, Milliman Briefing Paper,
San Francisco, CA, July 10, 2017, pp. 1-2, http://www.milliman.com/insight/2017/Could-private-flood-insurance-be-
cheaper-than-the-NFIP/.
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Variable Consumer Protections
The consumer protections associated with private policies are likely to be enforced at a state level
and will therefore be variable; some states may offer a higher level of protection than others.
Because private insurers are free to accept or reject potential policyholders as necessary in order
to manage their risk portfolio, private insurers may not necessarily renew a policy. A private flood
insurance policy might be less expensive than an NFIP policy, but it might also offer less
extensive coverage, which a policyholder may not realize until they make a claim following a
flood. Unlike the NFIP, the language in private flood insurance policies is not standardized and
has not yet been tested in court in the same way as, for example, homeowners’ insurance. Thus
there may be greater variability in claims outcomes for consumers in the early years of private
flood insurance penetration.
Adverse Selection
Private sector competition might increase the financial exposure and volatility of the NFIP, as
private markets will likely seek out policies that offer the greatest likelihood of profit. In the most
extreme case, the private market may “cherry-pick” (i.e., adversely select against the NFIP) the
profitable, lower-risk NFIP policies that are “overpriced” either due to cross-subsidization or
imprecise flood insurance rate structures, particularly when there is pricing inefficiency in favor
of the customer.96 This could leave the NFIP with a higher density of actuarially unsound policies
that are being directly subsidized or benefiting from cross-subsidization. Because the NFIP
cannot refuse to write a policy, those properties that are considered “undesirable” by private
insurers are likely to remain in the NFIP portfolio—private insurers will not compete against the
NFIP for policies that are inadequately priced from their perspective.97 Private insurers, as profit-
seeking entities, are unlikely independently to price flood insurance policies in a way that ensures
affordable premiums as a purposeful goal, although some private policies could be less expensive
than NFIP policies. It is likely that the NFIP would be left with a higher proportion of subsidized
policies, which may become less viable in a competitive market.98
The extent of such “cherry picking” is uncertain with some arguing that it would have little
effect.99 However, evidence from the UK flood insurance market suggests that even in an entirely
private market “cherry picking” can be difficult to avoid. Interviews of private insurers indicate
that one of the key drivers for the introduction of Flood Re, the UK private flood insurance
scheme which was introduced in 2016, was the emergence of new entrants in the flood insurance
market after 2000. These new entrants had little or no existing high-flood-risk business and no
commitment to continue to insure this business under the terms of the then-existing informal
agreement with the government. This gave them a competitive advantage, as they could choose to
select the more profitable lower-risk business. One driver for change therefore was that Flood Re

96 David Altmaier, Andy Case, and Mike Chaney, et al., Flood Risk and Insurance, NAIC Center for Insurance Policy
and Research, CIPR Study Series 2017-1, April 2017, p. 47, http://www.naic.org/documents/
cipr_study_1704_flood_risk.pdf.
97 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 85.
98 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program: Challenges
and Solutions, April 2017, p. 66, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
99 See, for example, R.J. Lehman, “Private Flood Insurance Market Is Getting Bigger, More Competitive, Less
Profitable,” Insurance Journal, March 18, 2018, at https://www.insurancejournal.com/blogs/right-street/2018/03/18/
483689.htm.
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would include these new entrants and force them to contribute by charging their clients for the
cross-subsidy for Flood Re, leveling the playing field between the private insurers.100
A significant increase in private flood insurance policies that “depopulates” the NFIP may also
undermine the NFIP’s ability to generate revenue, reducing the amount of past borrowing that can
be repaid or extending the time required to repay the debt. If the number of NFIP policies
decreases, it would likely become increasingly difficult for the remaining NFIP policyholders to
subsidize policies, raising prices for the non-subsidized policyholders and thus accelerating the
move to private insurance. In the long term the program could be left as a “residual market” for
subsidized or high-risk properties. Residual market mechanisms are used in areas such as auto
insurance, where consumers may be required to purchase insurance, but higher risk individuals
may be unable to purchase it from regular insurers. The exact form of residual market
mechanisms varies in different states and for different types of insurance, but they typically
require some form of outside support either from the government or from insurers themselves.
In the 115th Congress, S. 1313 would have required FEMA, within two years of enactment, to
report on the extent to which the properties for which private flood insurance is purchased tend to
be at a lower risk than properties for which NFIP policies are purchased (i.e., the extent of
adverse selection), by detailing the risk classifications of the private flood insurance policies. S.
1313 would also have provided the FEMA Administrator the power to limit the participation of
WYO companies in the broader flood insurance marketplace if the Administrator determined that
private insurance adversely impacts the NFIP. Neither of the bills in the 116th Congress included
any provisions related to adverse selection.
Issues for NFIP Flood Mapping and Floodplain Management
If the number of NFIP policyholders were to decrease significantly, it might also be difficult to
support the NFIP’s functions of reducing flood risk through flood mapping and floodplain
management.101 NFIP flood mapping is currently funded in two ways, through (1) annual
discretionary appropriations; and (2) discretionary spending authority from offsetting money
collected from the Federal Policy Fee (FPF).102 The FPF is paid to FEMA and deposited in the
National Flood Insurance Fund (NFIF). The income from the FPF is designated to pay for
floodplain mapping activities, floodplain management programs, and certain administrative
expenses.103 About 66% of the resources from the FPF are allocated to flood mapping, with
floodplain management receiving about 19% of the overall income from the FPF.104 To the extent
that the private flood insurance market grows and policies move from the NFIP to private
insurers, FEMA will no longer collect the FPF on those policies and less revenue will be available
for floodplain mapping and management. Concerns have been raised about maintaining the
activities funded by the FPF, with some stakeholders arguing that a form of FPF equivalency, or
some form of user fee, should be applied to private flood insurance.105 In the 115th Congress, both

100 Edmund C. Penning-Rowsell, Sally Priest, and Clare Johnson, “The Evolution of UK Flood Insurance: Incremental
Change Over Six Decades,” International Journal of Water Resources Development, vol. 30, no. 4 (2014), pp. 694-713.
101 For a further discussion of the NFIP’s floodplain management and mapping functions, see CRS Report R46095, The
National Flood Insurance Program: Selected Issues and Legislation in the 116th Congress, by Diane P. Horn and
Baird Webel.
102 For an additional explanation of NFIP funding, including the funding for mapping, see CRS Report R44593,
Introduction to the National Flood Insurance Program (NFIP), by Diane P. Horn and Baird Webel.
103 42 U.S.C. §4014(a)(1)(B)(iii).
104 Email correspondence from FEMA Congressional Affairs staff, December 6, 2016.
105 Association of State Floodplain Managers, ASFPM Detailed Priorities for NFIP Reauthorization and Reform, April
1, 2019, p. 1, https://cdn.ymaws.com/floodplain.org/resource/resmgr/ASFPM_2019_NFIP_Reauthorizat.pdf.
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S. 1313 and S. 1368 contained mechanisms by which private insurance companies could have
contributed to the costs of floodplain mapping in lieu of paying the FPF. In the 116th Congress, S.
2187, Section 303, would have required FEMA to develop a fee schedule based on recovering the
actual costs of providing FIRMs and charge any private entity an appropriate fee for use of such
maps.
Enforcement of floodplain management standards could be more challenging within a private
flood insurance system, as the current system makes the availability of NFIP insurance in a
community contingent on the implementation of floodplain management standards. For example,
the Association of State Floodplain Managers (ASFPM) has expressed concerns that the
widespread availability of private flood insurance could lead some communities to drop out of the
NFIP and rescind some of the floodplain management standards and codes they had adopted,
leading to more at-risk development in flood hazard areas.106 ASFPM suggested that this issue
could be addressed by allowing private policies to meet the mandatory purchase requirement only
if they were sold in participating NFIP communities.107 FEMA suggested that access to federal
disaster assistance could be made partially contingent on the adoption of appropriate mitigation
policies, but noted that this approach could be politically challenging.108 However, a positive
consequence is that government investment in mitigation could increase private market
participation by reducing the flood exposure of high-risk properties and thereby increasing the
number of properties that private insurers would be willing to cover.109
Concluding Comments
The policy debate surrounding NFIP and private insurance has evolved over time. The discussion
in 2012 was framed in the context of privatization of the NFIP and actions that might be taken to
create conditions for private sector involvement. One of the primary interests of Congress at the
time was to reduce the federal government’s role in flood insurance by transferring its exposure
to the private sector,110 with an expectation that a realignment of roles would allow the federal
government to focus on flood risk mitigation while private markets focused on providing flood
insurance.111 One argument for increasing private sector participation in the U.S. flood market
was that competition should lead to innovation in flood risk analytics and modeling and produce
new flood insurance products that would better meet customer needs and lead to greater levels of
insurance market penetration.112 In fact, private sector flood risk analytics and modeling have
improved significantly before any sizable entry of private insurers into the market. Another
argument was that, in contrast to the NFIP, which cannot diversify its portfolio of flood risk by
insuring unrelated risks, the insurance industry can diversify catastrophic risks with uncorrelated

106 Association of State Floodplain Managers, ASFPM’s Comments on Loans in Areas Having Special Flood Hazards -
Private Flood Insurance Joint Notice of Proposed Rulemaking, January 6, 2017, pp. 1-4, https://asfpm-library.s3-us-
west-2.amazonaws.com/ASFPM_Pubs/ASFPM_Comemnts_SFHA_Loans_Private_Flood_Insurance_2017.pdf.
107 Ibid.
108 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 92.
109 Ibid., p. 108.
110 Ibid., p. 2.
111 Ibid., p. 52.
112 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 50.
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or less correlated risks from other perils, other geographic regions, non-catastrophic risks, or risks
from unrelated lines of business.113
FEMA considered a range of concrete steps by which the barriers to private sector involvement
could be addressed.114 Two of these have been introduced: the purchase of reinsurance and
reporting to make premium subsidies and cross-subsidies more transparent.115 The reduction of
premium subsidies for some properties will occur with the introduction of Rating 2.0.116 Although
BW-12 directed FEMA to make a recommendation about the best manner in which to accomplish
the privatization of the NFIP, FEMA presented the report without a recommendation, arguing that
any privatization strategy is complex and involves significant policy decisions that would require
input from a variety of stakeholders. They concluded that there is no single, clear solution; it is
heavily politicized; and harsh criticism of any change is inevitable.117
Currently the discussion is more focused on sharing risk and increasing penetration rates, with the
recognition that neither the NFIP nor the private sector is likely to be able to write all of the
policies needed to cover all of the flood risk in the United States. FEMA has identified the need to
increase flood insurance coverage across the nation as a major priority for NFIP reauthorization,
and this also forms a key element of their 2018-2022 strategic plan.118 FEMA has developed a
“moonshot” with the goal of doubling flood insurance coverage by 2023 through the increased
sale of both NFIP and private policies.
FEMA’s view is that both the NFIP and an expanded private market will be needed to increase
flood insurance coverage for the nation and reduce uninsured flood losses.119 However, the
private market is unlikely to expand significantly without congressional action. The concerns of
private companies related to the mandatory purchase requirement and continuous coverage and
the concerns of some Members of Congress about adverse selection are among the most pressing
issues likely to be addressed in any long-term NFIP reauthorization.

113 Ibid., p. 51.
114 Ibid., pp. 82-84.
115 The requirement in §28 of HFIAA (P.L. 113-89, 128 Stat. 1033) that the Administrator “clearly communicate full
flood risk determinations to individual property owners regardless of whether their premium rates are full actuarial
rates.”
116 For a full discussion of NFIP subsidies and cross-subsidies, see the section on Pricing and Premium Rate Structure
in CRS Report R44593, Introduction to the National Flood Insurance Program (NFIP), by Diane P. Horn and Baird
Webel; the section on Premiums Subsidies and Cross-Subsidies in CRS Report R46095, The National Flood Insurance
Program: Selected Issues and Legislation in the 116th Congress, by Diane P. Horn and Baird Webel; and the section
on Premium Subsidies and Cross-Subsidies in CRS Report R45999, National Flood Insurance Program: The Current
Rating Structure and Risk Rating 2.0, by Diane P. Horn.
117 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 84.
118 FEMA, 2018-2022 Strategic Plan, https://www.fema.gov/media-library/assets/documents/160940.
119 U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Statement of Roy E. Wright, Hearing on
Reauthorization of the National Flood Insurance Program, Part I, 115th Cong., 1st sess., March 14, 2017, pp.
https://www.fema.gov/sites/default/files/2020-07/roy-e-wright_reauthorization-nfip_statement_3-14-2017.pdf.
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Appendix. Provisions Related to Private Flood
Insurance in Legislation in the 116th Congress
The provisions in the 116th Congress legislation that relate to private flood insurance, and the
issues raised as barriers to private sector involvement, are summarized below and compared side-
by-side in Table A-1. S. 2187 also includes provisions related to administrative reforms of the
NFIP, some of which may be relevant to private insurance companies, which are not described in
this report. Comparable administrative reforms are included in H.R. 3111, the National Flood
Insurance Program Administrative Reform Act of 2019, rather than H.R. 3167.
H.R. 3167, National Flood Insurance Program Reauthorization Act
of 2019
 H.R. 3167, Section 107, would direct FEMA, if an NFIP policyholder switches to
private flood insurance but has already paid the NFIP premiums for the whole
year up front, to provide a prorated refund of the NFIP premium. This section
would also direct that Increased Cost of Compliance (ICC) premiums120 would
not be refunded if measures had been implemented using ICC coverage, and that
premiums would not be refunded if a claim has been paid or is pending under the
policy term for which the refund is sought.
 H.R. 3167, Section 401, would direct FEMA to consider private flood insurance
that satisfies the mandatory purchase requirement as also satisfying the
continuous coverage requirement to keep NFIP premium subsidies in place.
 H.R. 3167, Section 404, would allow FEMA to provide current and historical
property-specific information on flood insurance program coverage, flood
damage assessments, and payment of claims to private insurers, on the condition
that private insurers provide the same information to FEMA, homeowners, and
home buyers. Section 404 could potentially create conflicts with the Privacy Act
of 1974, which prohibits federal agencies from releasing data which contains
Personally Identifiable Information. In addition, although these data could be
used to better inform the participation of private insurers in offering private flood
insurance, the availability of NFIP data could make it easier for private insurers
to identify the NFIP policies that are “overpriced” due to explicit cross-
subsidization or imprecise flood insurance rate structures. Private insurers may
adversely select such properties, while the government would likely retain the
policies that benefit from those subsidies and imprecisions, potentially increasing
the deficit of the NFIP.121
 H.R. 3167, Section 406, would require FEMA annually to evaluate ceding a
portion of the risk of the NFIP to the private reinsurance or capital markets.
 H.R. 3167, Section 407, would give FEMA the authority to terminate any WYO
arrangement in its entirety upon 30 days written notice for (1) fraud or

120 The NFIP requires most policyholders, excluding condominium units and contents-only policies, to purchase
Increased Cost of Compliance (ICC) coverage, which is in effect a separate insurance policy to offset the expense of
complying with more rigorous building code standards when local ordinances require them to do so. ICC coverage
provides an amount up to $30,000 in payments for certain eligible expenses.
184 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program:
Challenges and Solutions, April 2017, p. 79, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
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misrepresentation; (2) nonpayment to FEMA of any amount due; or (3) material
failure to comply with the requirements of the arrangement or with the written
standards, procedures, or guidance by FEMA.
 H.R. 3167, Section 408, would require GAO to determine the percentages of
properties with federally backed mortgages located in SFHAs that satisfy the
mandatory purchase requirement, and the percentage of properties with federally
backed mortgages located in the 500-year floodplain122 that would satisfy the
mandatory purchase requirement if the mandatory purchase requirement applied
to such properties.
S. 2187, National Flood Insurance Program Reauthorization and
Reform Act of 2019
 S. 2187, Section 102, would prohibit FEMA from increasing the amount of
covered costs above 9% per year on any policyholder during the five-year period
beginning on the date of enactment. Covered costs include premiums, surcharges
(including the surcharge for ICC coverage and the HFIAA surcharge), and the
Federal Policy Fee. This would limit the rate of increase of covered costs for all
categories of policies, not just policies for primary residences, and would be
particularly significant for those policies where the pre-FIRM subsidy is
currently being phased out at 25% per year. This cap on premium increases could
potentially limit FEMA’s ability to implement rate increases under Risk Rating
2.0. Section 102 would also amend the basis on which premiums are determined
so that the calculation of an average historical loss year123 would exclude
catastrophic loss years. This would probably lower premiums for all
policyholders.
 S. 2187, Section 108, would require GAO to determine the percentages of
properties with federally backed mortgages located in SFHAs that satisfy the
mandatory purchase requirement, and the percentage of properties with federally
backed mortgages located in the 500-year floodplain that would satisfy the
mandatory purchase requirement if the mandatory purchase requirement applied
to such properties.
 S. 2187, Section 302, would establish that the total amount of reimbursement
paid to WYO companies could not be greater than 22.46% of the aggregate
amount of premiums charged by the company. It would also require FEMA to
ensure that the commission paid by a WYO company to agents of the company
would not be less than 15%.

122 The 500-year floodplain is defined by FEMA as an area with a 0.2% or greater risk of flooding every year.
123 The average historical loss year is the minimum target amount that the NFIP needs to collect from all premiums to
cover at least average annual losses, as determined by historical data. FEMA uses this estimate to calculate the
premium that would be sufficient to pay for the average level of losses that occurred in past years and help set the rate
level for subsidized flood insurance policies. When the NFIP was originally established, the average historical loss year
did not include catastrophic loss years. BW-12 directed FEMA to review the basis on which it was setting NFIP rates,
with specific attention to ensuring that catastrophic loss years would be fully incorporated into the NFIP calculation of
average historical loss year. See GAO, Financial Challenges Underscore Need for Improved Oversight of Mitigation
Programs and Key Contracts, GAO-08-457, June 16, 2008, p. 19, https://www.gao.gov/products/gao-08-437; and
National Research Council of the National Academies, Affordability of National Flood Insurance Program Premiums:
Report 1, 2015, p. 42, http://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-program-premiums-
report-1.
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 S. 2187, Section 303, would require FEMA to develop a fee schedule based on
recovering the actual costs of providing FIRMs and charge any private entity an
appropriate fee for use of such maps. This requirement could provide a
mechanism by which private insurance companies could contribute to the costs
of floodplain mapping in lieu of paying the FPF.
 S. 2187, Section 304, would require FEMA, within 12 months of enactment, to
develop a schedule to determine the actual costs of WYO companies and
reimburse the WYO companies only for the actual costs of the service or
products. It would require that all reimbursements made to WYO companies be
made public, including a description of the product or service provided to which
the reimbursement pertains.
 S. 2187, Section 305, would require FEMA to report on the feasibility of selling
or licensing the use of historical structure-specific NFIP claims data to non-
governmental entities, while reasonably protecting policyholder privacy.
 S. 2187, Section 405, would require FEMA to establish penalties for
underpayment of claims by WYO companies that are not less than the penalty for
overpayment of a claim.
 S. 2187, Section 408, would give FEMA the authority to direct a WYO company,
on 14 days’ notice, to terminate a contract or other agreement with any covered
entity124 that provides services to the WYO company, if FEMA determines that
the covered entity has engaged in conduct that is detrimental to the NFIP.
 S. 2187, Section 415, would authorize FEMA to create a pilot program under
which WYO companies and NFIP direct servicers would be required to
investigate pre-existing structural conditions that might result in the denial of an
NFIP claim, at the request of a policyholder or potential policyholder, before
providing or renewing flood insurance coverage.

124 A covered entity is defined in S. 2187, §408, as any attorney, law firm, consultant, or third-party company that
provides services to a WYO company.
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Table A-1. Provisions Related to Private Flood Insurance in Legislation in the 116th Congress
Provision
H.R. 3167
S. 2187
Continuous coverage
§401. Would direct FEMA to consider private flood insurance
No comparable provisions
that satisfies the mandatory purchase requirement as also
satisfying the continuous coverage requirement to keep NFIP
premium subsidies in place.
Cap on premium increases
No comparable provisions
§102. Would prohibit FEMA from increasing the amount of
covered costsa above 9% per year on any policyholder during
the five-year period beginning on the date of enactment.
Risk transfer
§406. Would require FEMA annually to evaluate ceding a
No comparable provisions
portion of the risk of the NFIP to the private reinsurance or
capital markets, if the Administrator determines that the rates
and terms are reasonable and doing so would further the
development and maintenance of a sound financial framework
for the NFIP.
WYO allowance
No comparable provisions
§302. Would establish that the total amount of
reimbursement paid to WYO companies could not be greater
than 22.46% of the aggregate amount of premiums charged by
the company.
WYO costs
No comparable provisions
§302. Would require FEMA to ensure that the commission
paid by a WYO company to agents of the company would not
be less than 15%.

§304. Would require FEMA, within 12 months of enactment,
to develop a schedule to determine the actual costs of WYO
companies and reimburse the WYO companies only for the
actual costs of the service or products. Would also require
that all reimbursements made to WYO companies be made
public, including a description of the product or service
provided to which the reimbursement pertains.
WYO pilot program
No comparable provisions
§415. Would authorize FEMA to create a pilot program under
which WYO companies and NFIP direct servicers would be
required to investigate pre-existing structural conditions that
might result in the denial of an NFIP claim, at the request of a
policyholder or potential policyholder, before providing or
renewing flood insurance coverage.
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Provision
H.R. 3167
S. 2187
WYO penalties
No comparable provisions
§405. Would require FEMA to establish penalties for
underpayment of claims by WYO companies that are not less
than the penalty for overpayment of a claim.

§407. Would give FEMA the authority to terminate any WYO
§408. Would give FEMA the authority to direct a WYO
arrangement in its entirety upon 30 days written notice for (1) company, on 14 days’ notice, to terminate a contract or other
fraud or misrepresentation; (2) nonpayment to FEMA of any
agreement with any covered entityb that provides services to
amount due; or (3) material failure to comply with the
the WYO company, if FEMA determines that the covered
requirements of the arrangement or with the written
entity has engaged in conduct that is detrimental to the NFIP.
standards, procedures, or guidance by FEMA.
NFIP claims data
§404. Would allow FEMA to provide current and historical
§305. Would require FEMA to report on the feasibility of
property-specific information on flood insurance program
selling or licensing the use of historical structure-specific NFIP
coverage, flood damage assessments, and payment of claims to claims data to non-governmental entities, while reasonably
private insurers, on the condition that private insurers provide protecting policyholder privacy.
the same information to FEMA, homeowners, and home
buyers.
Funding for flood mapping
No comparable provisions
§303. Would require FEMA to develop a fee schedule based
on recovering the actual costs of providing FIRMs and charge
any private entity an appropriate fee for use of such maps.
Study of compliance with
§408. Would require GAO to determine the percentages of
§108. Would require GAO to determine the percentages of
mandatory purchase
properties with federally backed mortgages located in SFHAs
properties with federally backed mortgages located in SFHAs
requirement
that satisfy the mandatory purchase requirement, and the
that satisfy the mandatory purchase requirement, and the
percentage of properties with federally backed mortgages
percentage of properties with federally backed mortgages
located in the 500-year floodplain that would satisfy the
located in the 500-year floodplain that would satisfy the
mandatory purchase requirement if the mandatory purchase
mandatory purchase requirement if the mandatory purchase
requirement applied to such properties.
requirement applied to such properties.
Source: CRS analysis of legislation from http://www.congress.gov.
Notes: H.R. 3167, as reported by the House Financial Services Committee (H.Rept. 116-262, Part I).
a. Covered costs include premiums, surcharges (including the surcharge for ICC coverage and the HFIAA surcharge), and the Federal Policy Fee.
b. A covered entity is defined as any attorney, law firm, consultant, or third-party company that provides services to a WYO company.

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Private Flood Insurance and the National Flood Insurance Program

Author Information

Diane P. Horn
Baird Webel
Specialist in Flood Insurance and Emergency
Acting Section Research Manager
Management

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
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Congressional Research Service
R45242 · VERSION 13 · UPDATED
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Report Type: CRS Report

Source: CRSReports.Congress.gov, EveryCRSReport.com

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