Flood Insurance Reform: Analysis and Comparison of 109th Congress Bills (H.R. 4973 and S. 3589)

Flood Insurance Reform: Analysis and Comparison of 109th Congress Bills (H.R. 4973 and S. 3589)

Order Code RL33689
CRS Report for Congress
Received through the CRS Web
Flood Insurance Reform:
Analysis and Comparison of 109th Congress Bills
(H.R. 4973 and S. 3589)
October 12, 2006
Rawle O. King
Analyst in Industry Economics
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

Flood Insurance Reform: Analysis and Comparison of
109th Congress Bills (H.R. 4973 and S. 3589)
Summary
In 1968, Congress established the National Flood Insurance Program (NFIP) as
a response to mounting flood losses, escalating costs of disaster relief to the general
taxpayers, and as an alternative to ad hoc federal disaster assistance. In the wake of
Hurricanes Katrina, Rita, and Wilma in 2005, the NFIP faces unprecedented financial
and regulatory strains. The nation’s attention has now focused on disaster impacts
and costs, as well as both the strengths and weaknesses of the NFIP in managing and
financing the nation’s flood risk. Those concerned about program weaknesses cite
the increasing need to borrow from the U.S. Treasury, substantial premium cross-
subsidies among classes of policyholders, outdated flood insurance rate maps,
allegations of uneven compliance with mandatory purchase requirements, questions
as to the performance and efficiency of the Write Your Own program, and a need to
put the NFIP on sounder financial footing.
At the behest of the Congress, FEMA has from time to time examined the
program’s contingent liabilities and recommended ways to provide financial stability
to the flood insurance program. For example, the NFIP’s borrowing authority is
currently the exclusive financing arrangement for potential catastrophic losses. In
recent years FEMA has identified alternative financing arrangements, but Congress
has yet to act on any proposal.
Members of the 109th Congress are considering H.R. 4973 and S. 3589 — the
Flood Insurance Reform and Modernization Act of 2006 — which seek to enhance
the NFIP’s effectiveness and limit taxpayer liability for claims. The main thrust of
the reform effort is to have the program satisfy traditional criteria for actuarial
soundness by eliminating some or all of the premium subsidy provided to certain
properties insured under the NFIP. The Congressional Budget Office (CBO)
estimates the NFIP provides a $1.3 billion annual premium subsidy. CBO suggests
that eliminating the subsidies on all properties, including nonresidential and non-
primary (i.e., vacation or second home), would result in generating sufficient
premiums to cover the long-term future obligations of the NFIP, but not necessarily
enough to cover past losses or future catastrophic loss years. Some stakeholder
groups have expressed concerns about making abrupt changes to the NFIP without
full knowledge of potential unintended adverse effects. Others argue, however, that
the NFIP must be reauthorized by Congress in 2008, so any reforms to the program
approved now could be revisited during the 110th Congress.
This report provides an overview of the NFIP, focusing on factors that may
affect the NFIP’s actuarial soundness or that may inhibit its ability to provide flood
insurance to property owners. This is followed by a summary and side-by-side
comparison of the House and Senate versions of the Flood Insurance Reform and
Modernization Act of 2006 — H.R. 4973 and S. 3589.
This report will be updated as events warrant.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Catastrophic Losses and the NFIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The National Flood Insurance Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Organization and Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Policyholders, Premium Subsidy, and Actuarial Soundness . . . . . . . . . . . . 5
Premium Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Actuarial Soundness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Repetitive Loss Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Mandatory Purchase Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Flood Map Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
NFIP Multi-Year Comprehensive Evaluation . . . . . . . . . . . . . . . . . . . . . . . 10
Major Legislative Proposals in 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H.R. 4973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
S. 3589 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Comparison and Analysis of Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Tables
Table 1. Treasury Borrowing and Repayments Under the National Flood
Insurance Program
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 2. Side-by-Side Comparison of Flood Insurance Reform Legislation:
H.R. 4973 and S. 3589 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Flood Insurance Reform: Analysis and
Comparison of 109th Congress Bills (H.R.
4973 and S. 3589)
Background
The 2005 Gulf Coast hurricanes were catastrophic disasters that required
substantial federal disaster relief and unusually large claims payouts under the
National Flood Insurance Program (NFIP). Federal allocations1 for post-disaster
assistance now total $109 billion, plus more than $8 billion in tax relief.2 This $109
billion amount includes $89.6 billion in post-disaster assistance and $19.3 billion in
insurance claim payments under the NFIP. As of August 31, 2006, the NFIP had
borrowed $16.75 billion from the U.S. Treasury — an amount that far exceeds the
aggregate amount of claims paid in the history of the program.3 The $89.6 billion
appropriated by Congress includes $11.5 billion in U.S. Department of Housing and
Urban Development (HUD) Community Development Block Grant (CDBG) funds
for five states (Alabama, Florida, Louisiana, Mississippi, and Texas) affected by
Hurricanes Katrina, Rita, and Wilma.4 The majority of the CDBG funds will be used
to compensate homeowners in Louisiana and Mississippi for the value of their
homes, up to their insured value or $150,000, whichever is less.5 Grants are now
available to thousands of homeowners outside of Special Flood Hazard Areas,
1 The term federal allocation is used rather than spending to refer to the fact that this is
federal intent or spending priorities for the hurricane recovery effort. These figures as
current as of August 31, 2006.
2 Matt Fellowes and Amy Liu, “Federal Allocations in Response to Katrina, Rita and Wilma:
An Update,” The Brookings Institutions, located at [http://www.brookings.edu/metro/pubs/
20060712_katrinafactsheet.pdf#search=%22community%20development%20block%20g
rant%20and%20katrina%20flood%20relief%22].
3 U.S. Government Accountability Office, Hurricane Katrina: GAO’s Preliminary
Observations Regarding Preparedness, Response, and Recovery, GAO-06-442T,
(Washington: Mar. 8, 2006), p. 38.
4 The CDBG funds were allocated as follows among the Gulf states: Alabama, $74.4
million; Florida, $82.9 million; Louisiana, $6.2 billion; Mississippi, $5.1 billion; and Texas,
$74.5 million. For more information, see CRS Report RL33330, Community Development
Block Grant Funds in Disaster Relief and Recovery, by Eugene Boyd.
5 On June 15, 2006, President Bush signed into law the fourth emergency supplemental, for
$19.8 billion, in support of short- and longer-term needs of the Gulf Coast. The $19.8
billion includes $5.2 billion in additional CDBG funds, with $4.2 billion intended for
Louisiana and the remaining $1 billion to support the renovation and construction of
affordable rental housing in the affected states.

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commonly known as the flood plain or the flood zone, who were not required by
federal law to purchase flood insurance.6
In addition to federal appropriations in support of short- and longer-term needs
of the Gulf Coast, legislative efforts are now underway in Congress to reform the
NFIP so as to provide for its fiscal solvency and actuarial soundness, while protecting
current policyholders and taxpayers. Some stakeholder groups have expressed
concerns about making abrupt changes to the NFIP without full knowledge of
potential unintended adverse effects that could undermine the program. Others argue
that because the NFIP must be reauthorized by Congress in 2008, any reforms to the
program approved now could be revisited during the 110th Congress.
Catastrophic Losses and the NFIP
In the aftermath of Hurricanes Katrina, Rita, and Wilma, policymakers have
expressed broad concerns about the financial condition of the NFIP, particularly with
respect to potential future catastrophic losses and the program’s ability to meet its
financial obligations to the Treasury and to its policyholders. In an attempt to ensure
that FEMA has the financial resources to cover current obligations (i.e., policyholder
claims and operational expenses, but not debt service), Congress passed and the
President signed into law legislation to increase the NFIP’s borrowing authority to
allow the agency to continue to pay flood insurance claims: first to $3.5 billion in
September 20, 2005;7 to $18.5 billion on November 21, 2005;8 and finally to $20.775
billion on March 23, 2006.9 FEMA estimates that the NFIP will need about $3
billion in additional borrowing authority in late 2006 and early 2007 to pay the
remaining claims from the 2005 hurricanes.10
Under current law, FEMA must repay any borrowed funds (with interest) as it
collects premiums. The Congressional Budget Office calculates that FEMA is
unlikely to repay the funds borrowed to pay 2005 hurricane-related claims within the
next 10 years.11 Even if FEMA increased flood insurance rates up to the maximum
amount allowed by law (10% per year), the program would still not have sufficient
funds to cover future obligations for policyholder claims, operating expenses, and
6 In order to qualify for the $150,000 compensation, the home must: (1) be outside the flood
zone established by the federal government; (2) be owner-occupied; and (3) have had
homeowner or similar insurance coverage at the time of Katrina’s landfall. These criteria
were established to eliminate the possibility of assistance to homeowners who lived within
a known flood area and yet did not maintain flood insurance or homeowners who did not
maintain standard home insurance.
7 P.L. 109-65; 110 Stat. 1998.
8 P.L. 109-106; 119 Stat. 2288.
9 P.L. 109-208; 120 Stat. 317.
10 See Letter from Donald B. Marron, Acting Director of Congressional Budget Office, to
Honorable Judd Gregg, Chairman, Committee on the Budget, March 31, 2006, located at
[http://www.cbo.gov/ftpdocs/72xx/doc7233/05-31-NFIPLetterGregg.pdf].
11 Ibid.

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interest on borrowed debt stemming from the 2004 and 2005 hurricane seasons.12
Congress has been encouraged to consider the forgiveness of NFIP’s Treasury
borrowing by advocates who point to the avoidance of billions of dollars in flood
losses that would otherwise have been paid by the Treasury and taxpayers.
Economists observe that debt forgiveness would constitute an explicit subsidy from
general taxpayer funds, with federal budgetary consequences.
Recognizing the unprecedented financial and regulatory challenges facing the
NFIP, and the exposure of the federal government to future claims from another
catastrophic loss year, most insurance market analysts and policymakers appear to
agree that this 38-year-old program is in need of an overhaul. Those concerned about
program weaknesses cite:
! increased need to borrow from the U.S. Treasury,
! substantial premium cross-subsidies among classes of
policyholders,
! outdated flood insurance rate maps that will form the basis for
making decisions about where and how to rebuild the Gulf Coast,
! allegations of uneven compliance with mandatory purchase
requirements,
! questions as to performance and efficiency of the Write Your
Own program, and
! general need to put the program on sounder financial footing.
This report provides an overview of the NFIP, focusing on those factors that
might undermine the NFIP’s fiscal and actuarial soundness or that may inhibit its
ability to provide flood insurance to property owners. This is followed by a summary
and side-by-side comparison of the House and Senate versions of the Flood Insurance
Reform and Modernization Act of 2006 — H.R. 4973 and S. 3589.
The National Flood Insurance Program
After several decades of massive investments in area flood control facilities like
dams, levees, and floodway improvements with the aim of modifying nature’s flood
hazard areas, Congress established the National Flood Insurance Program (NFIP)
with the 1968 passage of the National Flood Insurance Act.13 The availability of
federally subsidized flood insurance signaled a shift in federal policy towards flood
plain avoidance and a public policy response to three forces:
! continued development of the nation’s floodplains,
! lack of private insurance options for flood insurance on reasonable
terms and conditions, and
! escalating cost of ad hoc federal disaster assistance.14
12 Ibid.
13 P.L. 90-448; 82 Stat. 572.
14 Ibid, Section 1302(b).

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Policymakers envisioned the use of insurance to facilitate long-range flood-
mitigation land use policies. Despite extensive flood management efforts and
spending, however, the number of floods and flood-related damage continues to
increase.15 Some disaster experts have speculated that the trend is the result of
climate change, while others say population growth and development and federal
policy are to blame.
Organization and Structure
The NFIP consists of a three-pronged strategy: flood risk assessment and
mapping, financing flood risk through insurance, and land use and building
construction measures that constrict the development of land exposed to flood
hazard. Taken together, this strategy allows for residential construction in known
floodplains, but with the proviso that the property must be constructed according to
building code regulation that incorporates flood-proofing requirements. The NFIP
was broadened and modified with the passage of the Flood Disaster Protection Act
of 197316, and other major reform legislation in 1977,17 1994,18 and 2004.19

Today, federal flood insurance is currently available in 20,118 participating
communities to help individuals and small businesses recover following a flood.
FEMA officials point out that the NFIP has realized significant savings both to itself
and property owners by reducing the cost of disaster relief. The basic requirement
of the flood management program (and access to federal flood insurance) is that
communities adopt and enforce minimum land use and building code regulation to
prevent new development from increasing the flood threat and to protect new and
existing buildings from anticipated flood events. In practical terms, new residential
construction in special flood hazard areas (SFHA) must be elevated to or above the
level water would reach in a flood that occurs with a 1% annual chance. This water
level is called the Base Flood Elevation (BFE). The NFIP also requires that existing
residential structures that are below BFE be raised to that level if they are
substantially damaged or improved (i.e., cost of the improvement or damage equals
or exceeds 50% of the market value of the building before construction starts on the
improvement).
The NFIP’s Standard Flood Insurance Policy (SFIP), which includes the General
Property and Dwelling Forms, covers: (1) direct physical losses caused by flood; (2)
losses resulting from flood-related erosion caused by waves or currents of water
activity exceeding anticipated cyclical levels; or (3) losses caused by a severe storm,
15 R.A. Pielke, Jr., M.W. Downton, and J.Z. Barnard Miller, 2002: Flood Damage in the
United States, 1926-2003: A Reanalysis of National Weather Service Estimates, located at
[http://www.flooddamagedata.org/flooddamagedata.pdf].
16 P.L. 93-234; 87 Stat. 975.
17 Title VII of the Housing and Community Development Act of 1977, P.L. 95-128; 91 Stat.
1147.
18 P.L. 103-325; 108 Stat. 2255.
19 P.L. 108-264; 116 Stat 712.

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flash flood, or abnormal tidal surge which result in flooding.20 The policy covers
damages to building property, up to $250,000, and personal property (contents), up
to $100,000.21 Structures and related contents of small businesses are covered for
$500,000 each, for a total coverage of $1,000,000. Buildings are covered for
replacement cost, but coverage for content is available on an actual cash value basis
only.22
Policyholders, Premium Subsidy, and Actuarial Soundness
Since 1978, the NFIP has grown from 1.4 million policyholders and $50 billion
in risk exposure to 4.9 million policyholders and approximately $900 billion in risk
exposure, with $2.3 billion in annual premiums.23 Participation in the NFIP
increased sharply during the 1970s and 1980s after Congress passed the Flood
Disaster Protection Act of 197324 to require known flood-prone communities to
participate in the program, expand the program by substantially increasing limits of
coverage and the total amount of insurance authorized to be outstanding, and restrict
the use of federal funds in floodplain areas unless the property was protected by flood
insurance.25
Premium Subsidies. The 1973 act also explicitly authorized subsidized
premiums on pre-Flood Insurance Rate Map (FIRM) structures to encourage
communities to join the program.26 In addition, pre-FIRM structures are not required
to comply with existing construction requirements. After the FIRM is completed,
however, newly constructed structures in the community are required to be built
according to the NFIP’s building standards (i.e., the lowest floor of a newly
constructed structure must be elevated to or above the base flood level, BFE).
20 The Dwelling Form is used to insure single family dwellings, two-to-four family
residential buildings, residential condominium units, and one-to-four family buildings under
construction. The General Property Form is used to insure residential buildings,
nonresidential condominium buildings, nonresidential condominium units, buildings under
construction, non-household contents in a residential building, and household contents in
a nonresidential building.
21 Items such as artwork, photographs, memorabilia, rare books, jewelry, watches, gems,
articles of gold, silver, or platinum and furs are limited to $2,500 coverage in the aggregate.
22 Replacement cost is defined as the cost to replace the property on the same premises with
other property of comparable quality used for the same purpose. Actual cash value is the
replacement cost minus any depreciation. It represents the cost to replace with like kind and
quality, less depreciation.
23 FEMA uses 1978 as the starting date for collecting NFIP data. This was the year the
program was transferred from the Department of Housing and Urban Affairs. For more
policy and claim statistics, see [http://www.fema.gov/business/nfip/statistics/pcstat.shtm].
24 P.L. 93-234; 87 Stat. 975.
25 U.S. Congress, Committee on Banking and Currency, Flood Disaster Protection Act of
1973, report to accompany H.R. 8449, 93rd Cong., 1st sess., H.Rept. 93-359, June 29, 1973
(Washington: GPO, 1973), p. 1.
26 Subsidized rates are available for the first $35,000 of coverage for a single-family pre-
FIRM property. Any insurance above that amount must be purchased at actuarial rates.

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Section 103 of the 1968 act reads as follows:
(c) Notwithstanding any other provision of this title, the chargeable rate with
respect to any property, the construction or substantial improvement of which the
Secretary determines has been started after December 31, 1974, or the effective
date of the initial rate map published by the Secretary under paragraph (2) of
section 1360 for the area in which such property is located, whichever is later,
shall not be less than the applicable estimated risk premium rate for such are (or
subdivision thereof) under section 1307(1)(1).27
About 1.2 million of the 4.9 million policyholders (24.4%) pay premiums that
do not cover the full risk of insuring their properties. The Congressional Budget
Office (CBO) estimates that the policy of subsidizing pre-FIRM properties produces
a revenue shortfall of about $1.3 billion each year.28 FEMA would have to raise
annual average premiums from about $710 to $1,800 to cover the revenue shortfall.29
Even with this higher pricing, the NFIP would still not generate premium income
sufficient to build reserves for potential catastrophic losses.
Actuarial Soundness. By design, the NFIP does not conform to traditional
insurance industry criteria for actuarial soundness in that the program does not collect
sufficient premium income to build reserves fully to meet long-term future expected
losses. FEMA’s flood insurance pricing strategy and financial goal are instead
designed to generate premiums sufficient at least to cover expected losses and
expenses relative to what is called the “historical average loss year,” which
approximates the average annual losses experienced since 1978.30
The NFIP typically generates premium surpluses in less-than-average loss years
and uses this surplus to pay claims in higher loss years. According to FEMA,
between 1978 and July 2006, the NFIP experienced many heavy-loss years, but no
catastrophic flood event until Hurricanes Katrina, Rita, and Wilma.31 FEMA defines
a catastrophe loss year as one which the program incurs claims losses greater than
$5.5 billion.
27 P.L. 93-234, 82 Stat. 576, Section 103.
28 See Letter from Donald B. Marron, Acting Director of Congressional Budget Office to
Honorable Judd Gregg, Chairman, Committee on the Budget, March 31, 2006, located at
[http://www.cbo.gov/ftpdocs/72xx/doc7233/05-31-NFIPLetterGregg.pdf].
29 U.S. Congressional Budget Office, The Budgetary Treatment of Subsidies in the National
Flood Insurance Program, (Washington: GPO, 1977), p. 6, [http://www.cbo.gov/ftpdocs/
70xx/doc7026/01-25-FloodInsurance.pdf].
30 Thomas L. Hayes and Shama S. Sabade, National Flood Insurance Program Actuarial
Rate Review,[http://www.fema.gov/pdf/nfip/rate_rev04.pdf].
31 Federal Emergency Management Agency, Significant Flood Events: 1978-July 31, 2006,
[http://www.fema.gov/business/nfip/statistics/sign1000.shtm].

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Borrowing
Table 1 shows the history of NFIP borrowing from and repayment to the U.S.
Department of Treasury. When faced with insufficient funds to pay claims and
expenses, as the NFIP did in 2004 and 2005, FEMA uses its statutory authority to
borrow from the Treasury to pay approved claims. The $300 million that FEMA
borrowed to pay 2004 flood claims was substantially repaid when Hurricanes
Katrina, Rita, and Wilma forced the agency to borrow another $16.75 billion.
Table 1. Treasury Borrowing and Repayments
Under the National Flood Insurance Program
(as of August 31, 2006)
Fiscal Year
Amount Borrowed
Amount Repaid
Cumulative Debt
Prior to FY1981a
$ 917,406,008
$ 0
$ 917,406,088
1981
164,614,526
624,970,099
457,050,435
1982
13,915,000
470,965,435
0
1983
50,000,000
0
50,000,000
1984
20,000,000
36,879,123
213,120,877
1985
0
213,120,877
0
1986-1993
0
0
0
1994 b
100,000,000
100,000,000
0
1995
265,000,000
0
265,000,000
1996
423,600,000
62,000,000
626,600,000
1997
530,000,000
239,600,000
917,000,000
1998
0
395,000,000
522,000,000
1999
400,000,000
381,000,000
541,000,000
2000
345,000,000
541,000,000
345,000,000
2001
600,000,000
345,000,000
600,000,000
2002
50,000,000
650,000,000
0
2003-2004
0
0
0
2005c
300,000,000
75,000,000
225,000,000
2006 to date
16,750,000,000
$0
$16,975,000,000
Total
$21,109,535,534
$4,134,535,534
$16,975,000,000
Source: Federal Emergency Management Agency Office of Legislative Affairs.
Note: Borrowing through 1985 was repaid from congressional appropriations. Borrowing since 1994 has been
repaid from premium and other income. There was no borrowing from 1985 to 1994.
aBalance forward from U.S. Department of Housing and Urban Development.
bOf the $100 million borrowed, only $11 million was needed to cover obligations.
cAs of August 31, 2005, FEMA had outstanding borrowing of $225 million with cash on hand totaling $289
million. FEMA had substantially repaid the $225 million borrowed when Hurricanes Katrina, Rita, and Wilma
struck, resulting in $16.75 billion in borrowing.

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Repetitive Loss Properties
Another factor that affects the NFIP’s actuarial soundness has been the cost of
insuring repetitive loss properties (RLPs). FEMA defines an RLP as a property that
is covered by a NFIP insurance policy and that has been the subject of two or more
flood claims of at least $1,000 over a rolling 10-year period. Although RLPs
comprise only about 1% of all insured properties, they account for 25% of all claims
paid.32 FEMA reports that properties that have received multiple insurance claim
payments account for an average of $200 million in claims each year. Additionally,
some 25% of all current NFIP policies do not pay actuarial rates for their coverage,
and thus are subsidized by the 75% of other policyholders.33 Most insurance market
experts agree that repetitive flood claims and very large claims payouts will likely
result in increased cost of flood insurance for everyone and accounts for a significant
factor affecting the stability of the NFIP.
The 2004 Flood Reform Act established a pilot program requiring owners of
RLPs to elevate, relocate, or demolish houses.34 The Repetitive Flood Claims (RFC)
grant program was created under this act with the aim of reducing the long-term risk
of flood damage caused by RLPs. Congress appropriated $10 million to support
activities under the RFC program. RFC funds may be used for activities that reduce
flood-related property damages to structures that are located within communities that
cannot meet the requirements of the Flood Mitigation Assistance (FMA) program for
either cost share or capacity to manage the activities.35
The FY2006 RFC funding priority is to fund the acquisition of severe repetitive
loss properties (SRLPs), which are defined as residential properties that have at least
four NFIP claim payments over $5,000 each, at least two of which have occurred
within any 10-year period, and with cumulative claims payments exceeding $20,000.
In addition, at least two separate claims payments would have to have been made,
with the cumulative amount of such claims exceeding the value of the property.
Nonresidential properties that meet the same claims thresholds as residential severe
repetitive loss properties are also eligible for RFC grants.
Mandatory Purchase Requirement
Among the NFIP reforms being considered in Congress is one that would more
broadly spread the risk by increasing the policyholder base, through both mandatory
32 See Association of State Floodplain Managers, Inc., National Repetitive Flood Loss
Mitigation Legislation, [http://www.floods.org/policy/ASFPM_Reploss_senate01-
13.pdf#search=`repetitive%20flood%20losses`].
33 Ibid.
34 U.S. Department of Homeland Security, “Pilot Program for Mitigation of Severe
Repetitive Loss Properties,” Federal Register, vol. 69, No. 178, Sept. 15, 2004, p. 55642.
35 U.S. Department of Homeland Security Appropriations Act of 2006, P.L. 109-90, 119
Stat. 2079.

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purchase and voluntary purchase.36 Currently, property owners who obtain loans
from federally regulated lending institutions or who receive federal financial
assistance for acquisition or construction purposes in special flood hazard areas
(SFHAs) in communities that participate in the NFIP are required to purchase flood
insurance for their outstanding mortgage balance, up to a maximum of $250,000 in
coverage for single family homes.37
In order to increase the policyholder base, some observers have gone as far as
to suggest that all homes (and businesses) in designated flood plains purchase federal
flood insurance, and not just homes with mortgages owned or serviced by federally-
regulated institutions. FEMA estimates that such an effort could add an estimated
4 to 6 million properties located in areas of lower risk of flooding (i.e., 250-year or
500-year floodplain), including properties protected by structural flood controls like
dams and levees. Currently, the mandatory purchase requirement applies only to
properties in the 1%, or 100-year floodplain.
Flood Map Modernization
FEMA is charged with identifying and mapping the nation’s flood hazards.38
Flood maps have been used for 35 years under the NFIP by insurance agents and
companies, lenders, property owners, flood zone determination firms, real estate
professionals, floodplain managers, community planners, engineers, and disaster and
emergency response officials, to determine the flood risk of individual properties or
to make local land use decisions. In the wake of the 2005 hurricanes, some disaster
experts and policymakers have expressed concerns about the accuracy of flood maps
that might not incorporate the latest engineering analyses or reflect changes caused
by development and natural factors that alter the terrain. This situation is of concern
to policymakers because the 1994 Reform Act mandated that FIRMs for each
community be reevaluated at least once every five years, but this has not happened.
In 1997, FEMA began a multi-year map modernization program to improve and
update the nation’s flood maps. Congress first appropriated funds for map
modernization in FY2003, with additional funding provided in FY2004, FY2005, and
FY2006. In response to the 2004 and 2005 hurricanes, however, FEMA had to
undertake a mid-course review of the flood map modernization plan. This review
and recommendations reflected the concerns of stakeholder groups who wanted
greater flexibility in determining areas to be mapped, establishment of a national
36 American Institutes for Research, The National Flood Insurance Program’s mandatory
Purchase Requirement: Policies, Processes, and Stakeholders, located at
[http://www.fema.gov/pdf/nfip/mandpurch_0305.pdf].
37 The mandatory purchase requirement was shaped by three major legislative measures: the
National Flood Insurance Act of 1968 (P.L. 90-448; 82 Stat. 572); the Flood Disaster
Protection Act of 1973 (P.L. 93-234; 87 Stat. 975); and the National Flood Insurance
Reform Act of 1994 (P.L. 103-325; 108 Stat. 2255).
38 Flood hazard areas are identified and depicted using statistical analyses of records of
riverflow, storm tides, and rainfall, as well as floodplain topographic surveys and hydrologic
and hydraulic analyses.

CRS-10
standard for mapping floodplain boundaries, and an increase in the level of
engineering analysis for communities at greater risk of flooding.
NFIP Multi-Year Comprehensive Evaluation
At the behest of the Congress, FEMA has from time to time examined the flood
insurance program’s contingent liabilities and recommended ways to provide
financial stability to the program. The NFIP’s borrowing authority is the exclusive
financing arrangement for the potential catastrophic losses. FEMA has in recent
years identified alternative financing arrangements, but Congress has yet to act on
any proposal. These approaches include annual appropriations, commercial bank
financing when losses exceed premium income plus some dollar retention level, and
the use of financial reinsurance and catastrophe bonds to smooth out the NFIP’s cash
flow.
Section 578 of the National Flood Insurance Reform Act of 1994 required
FEMA to:
... conduct a study of the economic effects that would result from increasing the
premium rates for flood insurance coverage made available under the National
Flood Insurance Program (NFIP) for pre-FIRM structures to the full actuarial risk
based premium.39
This study of the impact of imposing actuarial rate for pre-FIRM structures was
performed by PriceWaterhouse Coopers.40 There were three major findings. First,
flood insurance premiums would rise substantially for pre-FIRM structures exposed
to considerable flood risk as a result of subsidy elimination. Second, national
participation rates for all SFHA structures would grow from 28% in 1997 to 40% in
2022 in the absence of subsidy elimination, but if the subsidy were eliminated
immediately, the participation rate would drop from 26% in 1997 to about 20% in
1998; therefore the subsidy should be phased out over time. Third, the property
values of pre-FIRM structures would decline by 4% in 1998 if there were an
immediate subsidy elimination. It would appear that these findings might have
influenced a policy shift in Congress and the administration towards reducing or
eliminating the subsidy on non-primary and nonresidential properties.
Several years ago, FEMA began the first major evaluation of the program’s
performance and goals since its inception.41 According to FEMA, the purpose of the
overall program evaluation was to perform research and to develop data and other
information needed to support long-term planning and policymaking. The evaluation
sought to assess the NFIP in the following six areas: (1) occupancy and use of
floodplain, (2) cost and consequences of flooding, (3) insurance rating and
indemnification function, (4) floodplain management and enforcement, (5) hazard
39 P.L. 103-325; 108 Stat 2255.
40 PriceWaterhouse Coopers, Study of the Economic Effects of Charging Actuarially Based
Premium Rates for Pre-FIRM Structures, [http://www.fema.gov/pdf/nfip/execsumy.pdf].
41 American Institutes for Research, Design for the Evaluation of the National Flood
Insurance Program, located at [http://www.fema.gov/pdf/nfip/nfipeval_intro.pdf].

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identification and risk assessment, and (6) marketing and communications. This
multiyear evaluation, which is being managed under a contract by the American
Institute for Research, is ongoing and will likely take several more years to complete.
Most disaster experts appear to agree that demands on the NFIP are not likely
to decline, as weather-related disasters, particularly hurricanes, are said by some to
be worsening in frequency and severity, population continues to grow in flood-prone
areas, and property values continue to rise. In this environment of uncertainty, public
policy attention has focused on finding ways to address the financial needs of the
program for the next anticipated catastrophic flood event.
Major Legislative Proposals in 109th Congress
Table 2 provides a side-by-side comparison of the major provisions of H.R.
4973 and S. 3589 — the House and Senate versions, respectively, of the Flood
Insurance Reform and Modernization Act of 2006, which propose to modify the
NFIP to make the program financially solvent and enhance its effectiveness, while
limiting taxpayer liability for claims. Both bills were placed on the Senate legislative
calender on June 28, 2006, making them eligible for floor action at any time.
H.R. 4973
On June 27, 2006, the House passed H.R. 4973, the Flood Insurance Reform and
Modernization Act, which would modify the NFIP by implementing changes to bring
more consumers into the system and gradually reduce subsidies for properties built
before Flood Insurance Rate Maps (FIRMs) were developed. H.R. 4973 would
increase the NFIP’s borrowing authority from the U.S. Treasury from $18.5 billion
to $25 billion to cover claims from the 2005 hurricane season, and increase the dollar
limits on the amounts of coverage available for residential property, from $250,000
(structure) and $100,000 (contents) to $335,000 and $135,000 for any single-family
dwelling, and from $500,000 to $670,000 for structures and related contents of a
nonresidential property.
H.R. 4973 includes provisions aimed at moving the program to actuarial rates
for certain properties and updating the nation’s flood maps. Under H.R. 4973,
FEMA would be required to review the nation’s flood maps, and for the first time,
map the nation’s 500-year floodplain. The bill would authorize the appropriation of
$300 million a year over the 2007-2012 period for updating flood maps to include the
500-year floodplain and areas that would be flooded if a dam or levee failed, and
require FEMA to maintain and publish an inventory of U.S. levees.
H.R. 4973 would increase enforcement tools made available to bank regulators
at both the federal and state levels. Lenders would face higher penalties for
noncompliance with the NFIP’s mandatory flood insurance purchase requirement.
The current level of $350 per violation would increase to $2,000 per violation, with
a $1 million per institution cap on penalties in any given year. The $1 million cap,
however, would not apply to institutions for a calendar year if in any three of the last
five calender years the institution was assessed a penalty of at least $1 million. In

CRS-12
addition, lenders would be required to notify borrowers of requirements that flood
insurance is available to all homeowners, and not just those in 100-year floodplain,
as part of the Real Estate Settlement Act (RESPA) requirements.42
The House bill would also phase in actuarial rates for commercial and non-
primary residences and create new categories of optional coverage, such as business
interruption coverage, necessary increase in living expenses, basement
improvements, and replacement cost of contents. Actuarial rates would be phased
in after FEMA submits a report to Congress (not the date of legislation enactment).
The bill would instruct FEMA to establish an appeals process; implement specified
minimum training and education standards for insurance agents selling flood
insuranc; report to Congress regarding implementation of each provision of the
Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004;43 and identify
each regulation, order, notice, and other material issued by FEMA in implementing
the act.
Finally, H.R. 4973 would require the Government Accountability Office (GAO)
to study coverage for so-called “pre-FIRM” structures built or substantially improved
on or before December 31, 1974, or before the effective date of an initial flood
insurance rate map (FIRM) for the area. GAO also would be required to study
extending the mandatory purchase requirement to properties located in flood zones
protected by dams or levees. In addition, the bill would direct FEMA to report to
Congress twice a year on the financial status of the NFIP.
S. 3589
On May 25, 2006, the Senate Committee on Banking, Housing, and Urban
Affairs favorably reported S. 3589, the Flood Insurance Reform and Modernization
Act of 2006. The bill was placed on the legislative calendar under general orders on
June 28, 2006. This bill would eliminate premium subsidies on non-primary
residences, businesses, and severe repetitive loss properties, and forgive FEMA’s
Treasury borrowing debt for claims arising from the 2005 hurricane season. In
addition, S. 3589 would:
! make the NFIP more actuarially sound by phasing out premium
subsidies on vacation homes, businesses, and severe repetitive loss
properties built before the introduction of flood insurance rate maps
(FIRM) on or before December 31, 1974, or before the effective date
of an initial FIRM for the area;
! address often outdated and inaccurate flood maps that are used to
price insurance by requiring that flood maps be updated to allow the
program to transition to more accurate pricing of the insurance;
42 A growing number of Americans are exposed to flood risk due to unprecedented rains
that threaten levees and dams. The areas behind structural flood control measures
heretofore were not considered in the 100-year floodplain, so residents did not have to
comply with the mandatory purchase requirement under the NFIP.
43 PL 108-264; 118 Stat. 712.

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! establish a mandatory Reserve Fund to provide additional funding
to pay claims during catastrophic loss years without further need to
seek assistance from U.S. taxpayers in the future;
! increase enforcement tools available to bank regulators at both the
federal and state levels by requiring that flood insurance premiums
be escrowed during the life of mortgages;
! increase the civil monetary penalties regulators may levy against
lenders who fail to comply with the program’s mandatory purchase
requirements;
! require state-chartered lenders to maintain flood insurance coverage
on all mortgages located within the 100-year floodplain;
! require FEMA to participate in (nonbinding) mediation programs to
help homeowners resolve claims disputes such as those involving a
determination of the cause of damage — whether wind or water; and
! require GAO to conduct several studies (reports and audits) designed
to give Members of Congress the information they will need to
develop options for future changes to the program when it comes up
for reauthorization in 2008.
The key difference between the House and Senate bills is that the House bill
would increase the NFIP’s borrowing authority to $25 billion and require the Director
of FEMA to study and develop a plan to repay borrowed debt, while the Senate bill
would forgive about $21 billion of NFIP debt and establish a reserve fund for future
catastrophe flood losses. The Senate bill would impose greater premium rate
structural reforms than the House-passed reform legislation.
Comparison and Analysis of Bills
While H.R. 4973 is expected to be less costly for homeowners, it does include
several amendments that are of concern to private insurers, the real estate industry,
mortgage lenders, and the Bush Administration. The real estate industry is generally
concerned about efforts to expand the NFIP’s mandatory purchase requirement to
include low-risk areas (500-year floodplain or 0.2% chance of flood) located in areas
behind dams and levees. Insurers are concerned about provisions that call for: (1) an
“investigation” by the inspector general of the Department of Homeland Security,
rather than a study, into whether Write Your Own insurers that administer the
program improperly attributed damage to flooding (which the federal government
pays) instead of wind (which the insurers would pay) in the wake of Hurricanes
Katrina and Rita; (2) extension of the deadline for filing for proof-of-loss for up to
180 days following a disaster and prohibition of NFIP denial of claims solely for
failing to meet the deadline, and making it retroactive to claims dating from
Hurricane Isabel in 2003; and (3) broadening of the phase-out of premium subsidies
applicable to primary residences when they are sold.

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Mortgage lenders are concerned about the lack of a “safe harbor” provision in
S. 3589 for “technical noncompliance” and “unintentional clerical error.” They have
also expressed concerns about expanding the mandatory purchase requirement to
state-chartered institutions not insured by the Federal Deposit Insurance Corporation
(FDIC), the requirement for mortgage companies to escrow for hazard insurance, and
requiring lending institutions to notify homeowners about residential risks in the 500-
year floodplain.
Finally, while the Bush Administration has expressed support for flood
insurance reform legislation, a “Statement of Administration Policy” released on June
27, 2006, raised concerns over provisions in H.R. 4973 that would add new lines of
coverage, increase coverage limits, and require FEMA claims adjusters to participate
in state-sponsored mediation at the request of a state insurance commissioner.44 The
Administration also raised constitutional concerns involving separation of powers
between the branches of the federal government, and between the states and the
federal government. The issue of concern is that the Congress would be conferring
on state officials the authority to compel agents of the federal executive into the
state’s service.
It is unlikely that either bill will be taken up during the lame duck session of the
109th Congress, but they may serve as a springboard for action by the 110th Congress
during legislative efforts to reauthorize the NFIP.
44 Executive Office of the President, Office of Management and Budget, “Statement of
Administration Policy: H.R. 4973 — Flood Insurance Reform and Modernization Act of
2006”, [http://www.whitehouse.gov/omb/legislative/sap/109-2/hr4973sap-h.pdf], visited on
September 22, 2006.

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Table 2. Side-by-Side Comparison of Flood Insurance Reform Legislation:
H.R. 4973 and S. 3589
H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Title
Flood Insurance Reform and Modernization Act of 2006
Same.
Purpose
To protect the integrity of the NFIP by fully funding existing legal
No comparable prevision.
obligations, increase incentives for program participation, and promote
property owner awareness of both flood risks and the quality of
information regarding such risks. (Sec. 2)
Reform of Premium Rate
Would require phase-in of actuarial rates for nonresidential
Would gradually phase out the current premium rate subsidies on
Structure
(commercial) properties and non-primary residences by increasing the
certain pre-Flood Insurance Rate map (pre-FIRM) properties: (1) non-
chargeable premium rates 15% once during the 12-month period after
primary (vacation and second homes) residences; (2) any business
the Director of Federal Emergency Management Agency (FEMA)
property; (3) any severe repetitive loss property; (4) any property that
submits a report to Congress certifying that it has completed its review
has incurred flood-related damage in cumulative amounts of payment
of the nation’s flood maps, and once every 12 months thereafter until
exceeding the fair market value (FMV) of such property; (5) any
such increase is accomplished. (Sec. 4)
business property; and (6) any property that has sustained substantial
damage exceeding 50% of the FMV or substantial improvement
exceeding 30% of its FMV. Would provide for a 25% increase in
premium rates per year during the phase-out period until the property
is no longer subsidized under the program.
Would prohibit the Director from offering flood insurance at less than
actuarial rates for new policies or lapsed policies as a result of the
deliberate choice of the policyholder. (Sec. 4(a))

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Annual Limitations on
Would increase from 10% to 15% the average annual chargeable
Would change the overall maximum annual premium increase from
Premium Increases
premium rate increase for each risk category during any 12-month
10% per year to 15% per year.
period. (Sec. 9)
Would require the premium increase from phasing out the subsidized
properties to be 25% per year until that property is no longer
subsidized under the program. (Sec 4(b))
Waiting Period for Effective
Would reduce the waiting period for effective date of coverage for all
No comparable provision.
Date of Policies
purchases or transfers of property by any means, not just by purchase
via a loan as under current law, from the 30-day waiting period to a
15-day period. (Sec. 5)
Recently Purchased Pre-
Would require phased-in actuarial rates on newly purchased pre-FIRM
No comparable provision.
FIRM Properties
properties using the same phase-in structure that nonresidential and
non-primary homes would be subject under the legislation. (Sec. 4)
Extending Mandatory
Would require GAO to study the regulatory, financial, and economic
Would require the Director to issue an amended final regulation
Purchase Requirement to
impacts (i.e., costs of home-ownership, actuarial soundness of
defining special flood hazard areas (SFHA) to include areas known as
Properties Located Behind
program, lender compliance), and the effectiveness and feasibility of
“residual risk” areas located behind manmade structures such as
Structural Flood Protection
amending the Flood Disaster Protection Act of 1973 to extend
levees and dams. (Sec. 5(a))
Systems
mandatory flood insurance coverage purchase requirements to
properties located in areas that would have special flood hazards but
Residual risk areas are areas that would otherwise be within the 100-
for the existence of a structural protection system. (Sec. 3(a)(2))
year flood plain but are currently not required to obtain flood
insurance because they are protected by manmade structures such as
levees and dams. Would require that residual risk areas be subject to
the mandatory purchase requirement, but only after the Director
completes the mapping of all residual risk areas in the Unites States
that he/she deems essential to administer the flood insurance program.
(Sec. 5(c)(2))

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Non-Mandatory
No comparable provision.
States that it is not mandatory for individuals who reside in the 500-
Participation in 500-Year
year floodplain to obtain flood insurance. Requires the Director to
Floodplain
notify the communities within the 500-year floodplain to give them
notice that their communities are in elevated flood risk areas.
Requires federal and state entity for lending regulation to develop
regulations, after consultation with the Federal Financial Institutions
Examination Council, to notify the purchaser and the servicer of the
mortgage loan that such property is located in a 500-year flooplain.
Mortgage lenders must also give notice to mortgagees that they reside
within a 500-year floodplain. Civil penalties are provided for failure
to comply with the notice requirements. (Sec. 19)
Maximum Coverage Limits
Would increase coverage limits from $250,000 (structure) and
Would require the Government Accountability Office (GAO) to
and New Lines of Coverage
$100,000 (contents) to $335,000 and $135,000 for any single-family
conduct a study and submit a report to Congress on the number of
dwelling and from $500,000 to $670,000 for structures and related
flood insurance policyholders currently insured and what effect, if
contents of a nonresidential property. (Sec. 7)
any, on raising the maximum coverage limits.
(Sec. 24(c)(4))
Would provide for payment of $1,000 per dwelling in additional living
expenses following a flood loss when the residence is unfit to live in.
Would allow homeowners to purchase optional coverage for flood
losses in basements, crawl spaces and other enclosed areas under
buildings that are not covered by primary flood insurance. Would
provide optional business interruption coverage for commercial
property. Losses would be determined by the profits the covered
business would have earned, and on previous financial records, had the
flood not occurred. Would provide optional coverage for the full
replacement cost of any contents in the residential and commercial
property. New benefits would be made available only at time of
renewal or issuance of a new contract, and only at actuarial rates. (Sec.
8)

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
State Chartered Financial
Would require a study of the impact, effectiveness, and basis under the
Would require that lending institutions chartered by a state and not
Institution
Constitution of the United States for amending the Flood Disaster
insured by the Federal Deposit Insurance Corporation (FDIC) be
Protection Act of 1973 to extend NFIP’s mandatory purchase
subject to NFIP’s mandatory flood insurance purchase requirement no
requirements to properties in special flood hazard areas (SFHA) with
later than December 31, 2008. (Sec. 7)
mortgages issued by state-chartered financial institutions. (Sec.
3(a)(3))
Financing of Funds from
No comparable provision.
Would authorize the Secretary of the Treasury to provide funds to pay
Treasury
claims resulting from the 2005 hurricane season.
(Sec. 10(a))
Borrowing Authority Debt
No comparable provision.
Would require the Secretary of the Treasury to completely eliminate
Forgiveness
any obligations owed to the Treasury by the NFIP for the payment of
flood insurance claims resulting from the 2005 hurricane season.
(Sec. 11(a))
Debt forgiveness would take effect only after the Director certifies to
the Treasury that all financial resources available to the Director to
operate the NFIP have been otherwise obligated to pay claims. (Sec.
11(b))
Borrowing Authority Limits
Would increase the National Flood Insurance Program (NFIP)
Would reduce the NFIP’s borrowing authority from $20.775 billion to
Treasury borrowing authority from $20.775 billion to $25 billion.
$1.5 billion. (Sec. 11(c))
(Sec. 10)
Repayment Plan for
Would require the Director of Federal Emergency Management
Would require that any time the NFIP uses its borrowing authority, it
Borrowing Authority
Agency (FEMA) to submit a report to Congress within six months of
must submit a repayment plan to both the Secretary of the Treasury
enactment of the act, setting forth a plan for repaying borrowed funds.
and to Congress. (Sec. 15)
(Sec. 10)

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Reserve Funds
No comparable provision.
Would establish in the Treasury a National Flood Insurance Reserve
Fund (“Reserve Fund”) capitalized with up to 1% of the total potential
loss exposure of all outstanding flood insurance policies in force
within the program, or a higher percentage, as the Director determines
to be appropriate. Would establish a mechanism in order to achieve
the target 1% ratio within 10 years. In FY2007 the reserve ratio
would be 10%; in 2008 would be 20%, increasing 10% each year
through 2015 when the reserve ratio would be 90% . Director would
have discretion to suspend the attainment of the required reserve ratio
in any fiscal year and request additional appropriations from Congress
if he/she determines an increase in the amount of aggregate annual
insurance premiums to be collected for any fiscal year would have
serious negative implications for the overall program. (Sec. 14)
Minimum Deductibles for
No comparable provision.
Would set minimum annual deductible for pre-FIRM structures at
Claims
$2,000 and post-FIRM structures at $1,000. All deductibles are an
annual basis, and once the deductible has been met, no further
deductible is required for that year. (Sec. 12)
Extension of Pilot Program
Extends the pilot program for mitigation of severe repetitive loss
No comparable provision.
for Mitigation of Severe
properties through September 30, 2011. (Sec. 13)
Repetitive Loss Properties

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Civil Penalties for Lending
Civil penalties on lending institutions for violating the mandatory
Civil penalties on lending institutions for violating the mandatory
Institutions
flood insurance purchase requirement would be increased from $350
flood insurance purchase requirement increase from $350 to $2,000
to $2,000 per violation and the annual cap from $100,000 to
for each violation. Eliminates the annual cap. (Sec. 8)
$1,000,000. Would add a “safe harbor” provision to protect mortgage
lenders for “technical noncompliance” with flood insurance
requirements and “unintended clerical errors” by stating that no
penalties may be imposed on lenders who make good faith effort to
comply with the requirements. The $1 million cap would not apply to
regulated institutions during a calendar year if, in any three of the five
calendar years immediately proceeding that calendar year, the
institution was assessed a penalty of $1 million. (Sec. 6)
State Disaster Claims
Would permit the insurance commissioner of a state to submit a
Would require the NFIP, upon request of a state insurance
Mediation Programs
request to the Director of FEMA for the agency to participate (e.g.,
commissioner, to participate in a state’s non-binding mediation claims
provide certified adjusters) in non-binding mediation of catastrophe-
program where there are multiple insurance claims on the same
related insurance claims that may result in flood damage claims under
subject property. This provision would not apply in the event of a
the NFIP. Representatives of the Director who participate in the
major disaster that results in flood damage claims but no losses
program would be required to coordinate their activities with state
covered under a personal lines residential property insurance policy.
insurance regulators.
Would require mediators to have at least two years of practical
experience and be in good standing with regulatory officials in the
state where the mediation is to occur.
Would require the following: (1) all statements made and documents
Same. (Sec. 22)
produced during the mediation shall be deemed privileged and
confidential settlement negotiations made in anticipation of litigation;
(2) participation in the mediation shall not affect or expand the liability
or rights or obligations of any party in contract; (3) the federal courts
to retain the exclusive jurisdiction; and (4) FEMA shall not be required
to pay additional mediation fees. (Sec. 11)

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Notice of Flood Insurance
Would amend Section 5(b) of the Real Estate Settlement Procedures
Would amend Section 5(b) of the RESPA by requiring the Secretary
Availability Under RESPA
Act of 1974 (RESPA) to create a new notice provision to ensure that
of Housing and Urban Development to include in the booklet
individuals who purchase land in areas of elevated flood risk (whether
distributed an explanation and availability of flood insurance . (Sec.
or not the property is located in a special flood hazard area) are made
20)
aware of the risk and given an opportunity to purchase flood insurance.
(Sec. 14)
Escrow of Flood Insurance
Would amend Section 5(b) of the RESPA to add new statement in
Would require that each federal entity for lending regulation, after
Payments
RESPA good faith estimate that states the escrow of flood insurance
consultation with the Federal Financial Institutions Examination
payments is required for many loans under the 1973 act, and may be a
Council, promulgate regulations to direct policyholders to pay flood
convenient and available option with respect to other loans. (Sec. 14)
insurance premiums directly to the mortgage lender for the duration of
the loan when they make their monthly mortgage payments. The
lender would be required to deposit such premiums and fees in an
escrow account on behalf of the borrower. After the mortgage loan
has been paid off, the lender would be required to provide notice to
the mortgagee that insurance coverage may cease with the final
mortgage payment, and provide direction as to how the homeowner
may continue flood insurance coverage. This section would apply to
mortgages outstanding or entered into on or after the expiration of the
two-year period beginning on the date of the enactment of this act.
(Sec. 9(a))

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Technical Mapping
Would reestablish the Technical Mapping Advisory Council to assist
Would establish an 11-member Technical Mapping Advisory Council.
Advisory Council
with managing flood mapping activities. The council would include
Members are appointed by the Director and they would represent the
representatives from the Army Corps of Engineers, local and regional
following agencies or organizations: Under Secretary of Commerce
flood and stormwater agencies, state geographic information
for Oceans and Atmosphere; surveying and mapping professional
coordinators, and flood insurance servicing companies. Members of
associations; professional engineering associations; flood hazard
the council, appointed by the Director of FEMA, would make
determination firms; United States Geologic Survey; Office of
recommendations to the Director for improvements to the flood map
Management and Budget (OMB); state geologic survey programs;
modernization program, maintain an inventory of updated flood hazard
state national flood insurance coordination offices; Army Corps of
maps and information, and submit an annual report to the Director
Engineers; Secretary of the Interior; and, the Secretary of Agriculture.
outlining their activities and recommendations. (Sec. 16(c))
The council would make recommendations to the Director on cost-
effective way to improve the quality, ease of use, and distribution and
dissemination of flood insurance rate maps, develop mapping
standards and guidelines for FIRMs, and submit an annual report on
the council’s activities and recommendations to the Director.
Would require the chairperson of the council to consult with the
Federal Geographic Data Committee (established pursuant to OMB
Circular A-16) to ensure consistency with national digital spatial data
collection standards. (Sec. 16)
Post-Disaster Flood
Would allow the Director to issue interim flood elevation requirements
No comparable provision.
Elevation Determinations
for any areas affected by flood-related disaster. Interim elevation
determinations would take effect immediately upon issuance and may
remain in effect until the Director established new flood elevations for
such area. (Sec 16(d))

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H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Notification and Appeal of
Would require that when FEMA proposes a change in flood elevation,
No comparable provision.
Map Changes
the Director must notify the chief executive officer of each community
affected by the proposed elevation. The Director would also be
required to publish a notice in the Federal Register and local
newspapers, notifying each owner of real property affected by the
proposed elevation the status of such property with respect to flood
zone and flood insurance requirements under the act, and the process
to appeal a flood elevation determination. (Sec. 17)
Reiteration of FEMA
Would direct FEMA under the Bunning-Bereuter-Blumenauer Flood
Would direct FEMA to establish an appeals process through which
Responsibility Under the
Insurance Reform Act of 2004 (“Reform Act of 2004”) to establish an
policyholder may appeal the claims, proofs of loss, and loss estimates
2004 Reform Act
appeals process that policyholders can use to resolve decisions of the
relating to NFIP claims decisions. (Sec. 23(a))
Director relating to claims, proofs of loss, and loss estimates.
Would require the Director to continue to work with the insurance
Would require the Director to continue to work with the insurance
industry, state insurance regulators, and other interested parties to
industry, state insurance regulators, and other interested parties to
implement previously developed minimum training and education
implement previously developed minimum training and education
standards for insurance agents who sell flood insurance policies.
standards for insurance agents who sell flood insurance policies. (Sec.
23(b))
Would require the Director to submit a report to Congress within six
Would require the Director to submit a report to Congress not later
months describing FEMA’s implementation of provisions in the
than three months after enactment of the act detailing the progress
Reform Act of 2004. (Sec. 15)
made towards implementing each provision of the Reform Act of
2004 (P.L. 108-264; 118 Stat. 712). (Sec. 23(c))
Would require the Director to submit a report to Congress every 30
days detailing the progress made towards implementing the appeals
process of Section 203 of the 2004 Flood Insurance Reform Act until
such time as the process is fully updated. (Sec. 23(c))

CRS-24
H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Removal of Limitations on
No comparable provision.
Would remove the prohibition of states contributing more than 50% to
State Contributions for
map modernization in order for states to effectively and efficiently
updating flood maps
update and maintain their maps. (Sec. 18)
Testing New Flood
No comparable provision.
Would require the NFIP to allow testing of new types of flood
Proofing Technologies
proofing technology. States that such structures would not be
construed to be in violation of any flood risk mitigation plan
developed by that state or community and approved by the Director.
(Sec. 21)
National Levee Inventory
Requires the Director, in consultation with the Secretary of the Army,
No comparable provision.
to maintain and publish an inventory of levees in the United States.
(Sec. 18)

CRS-25
H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
National Flood Mapping
Would require the Director to establish a program under which he/she
Would require the Director with the guidance of the Technical
Program
shall review, update, and maintain flood insurance rate maps. Each
Mapping Advisory Council to map the 500-year floodplain and areas
map shall include a depiction of the 500-year floodplain, as well as
of residual risk, as well as updating the 100-year floodplain.
“residual risk” areas behind levees, dams, and floodwalls. Updated
flood maps would also include relevant information on coastal
inundation, stream flows, watershed characteristics, and topography
provided by the Army Corps of Engineers and the National Oceanic
and Atmospheric Administration (NOAA).
Would require the Director to: (1) establish standards to ensure the
In updating and maintaining maps, the Director would be required to
adequacy and consistency of maps and methods of data collection and
establish standards to ensure that maps are adequate for flood risk
analysis; (2) give priority to updating maps of coastal areas affected by
determinations and used by state and local governments.
Hurricanes Katrina and Rita in order to provide guidance with respect
to hurricane recovery efforts; and (3) in consultation with the
Technical Mapping Advisory Council, submit a report to Congress that
describes the flood map modernization activities by June 30 of each
year.
Would require FEMA, when practical, to utilize emerging weather
Would direct the NFIP to use the latest technology on hydrologic and
forecasting technologies in updating its flood maps.
hydraulic modeling, and the most accurate flood elevation data in
creating and updating the flood maps. (Sec. 17)
Would require FEMA after each update to flood maps, in consultation
Would authorize the appropriation of $400 million for FY2007
with the chief executive officer of each community affected, to
through FY2012. (Sec. 17)
conduct a program to educate such communities about the updated
flood insurance maps.
Would authorize the appropriation of $300 million for fiscal years
2007 through 2012. (Sec. 16)

CRS-26
H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
Annual Report on Financial
Would require FEMA to submit semiannual reports to Congress on the
Would require the Director to submit annual reports to Congress on
Condition of the Program
financial status of the program, including financial status of the
the operations, activities, budgets, receipts, and expenditures of the
National Flood Insurance Fund (NFIF) and current and projected
NFIP for the preceding 12-month period. Each report would be
levels of claims, premium receipts, expenses, and borrowing under the
submitted not later than three months following the end of each fiscal
program. (Sec. 12)
year. (Sec. 24(d))
Premium Adjustment
No comparable provision.
Would require that after updating any flood insurance map the
homeowners located on that map could request a premium rate
adjustment to accurately reflect the current risk of flood to such
property. (Sec. 6)
GAO Study of Pre-FIRM
Would require the Government Accountability Office (GAO) to
Would require the Secretary of the Treasury to conduct a study and
Properties
conduct a study and submit a report to Congress on coverage for pre-
submit a report to Congress on the remaining pre-FIRM structures that
FIRM properties, as well as the effects of extending the mandatory
are explicitly receiving discounted premium rates. The study would
purchase requirement to properties protected by dams and levees.
include the historical basis for the receipts of such subsidy and
(Sec. 3)
whether such subsidy has outlasted its purpose. (Sec. 24(f))
Investigation of Write-Your-
Would require the Inspector General of the Department of Homeland
No comparable provision.
Own Insurer’s Adjustment
Security to investigate Katrina-related claims adjusted by Write-Your-
of Claims Relating to
Own insurers to determine whether, and to what extent, the companies
Hurricane Katrina
improperly assigned damages to flooding covered by NFIP that should
have been paid by the windstorm coverage provided by the insurance
companies. Would require the Inspector General to report the finding
to Congress not later than six months after enactment of the act. (Sec.
21)

CRS-27
H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
GAO Study on Write Your
No comparable provision.
Would require GAO to conduct a study and submit report to Congress
Own (WYO) Policies
on the Write-Your-Own program that includes consideration of: (1)
the fees and expenses paid from premium income earned under the
NFIP to cover the cost of selling, servicing, and precessing of claims;
and (2) the feasibility of using a competitive bidding process, or other
alternative, to select one or more private insurer to sell and service
NFIP policies and process claims in exchange for a fee agreed upon
by contract with the Director. (Sec. 24(a))
GAO Audit of NFIP
No comparable provision.
Would require GAO to audit the financial transactions of the NFIP
Relating to Hurricane
relating to the $23 billion spent on claims during the 2005 hurricane
Katrina
season. (Sec. 24(b))
GAO Report on Expanding
No comparable provision.
Would require GAO to conduct a study and submit a report to
NFIP
Congress on the effects that expanding flood insurance beyond the
current caps (coverage limits) might have on the private insurance
market. (Sec. 24(c))
GAO Evaluation of the
No comparable provision.
Would require GAO to submit a report to Congress that analyzes
NFIP
whether the NFIP has fulfilled its purpose, unduly burdened or
benefitted taxpayers, and makes recommendations for legislative or
administrative action to ensure it operates in a more effective and
efficient manner. (Sec. 24(e))
GAO Study on Direct
No comparable provision.
Would require GAO to study the effects of allowing individuals from
Purchase in Non-
non-participating communities to purchase flood insurance through
Participating Communities
the NFIP’s direct program. (Sec. 24(g))

CRS-28
H.R. 4973 (Baker)
S. 3589 (Shelby)
Provision
[as passed by House on 6/27/06]
[as approved by Senate Banking Committee on 5/25/06]
GAO Study of Participation
Would direct GAO to conduct a study of potential methods, practices
No comparable provision.
of Low-Income Property
and incentives that would increase the degree to which low-income
Owners in High-Risk Areas
property owners living in high-risk areas participate in the NFIP. The
study would analyze the feasibility of providing coverage to low-
income families at discounted rates, the amounts of the discount to
make it affordable, and the extent to which low-income families would
be affected by expanding the mandatory purchase requirements. The
report would be submitted not later than 12 months after the date of
enactment of this act. (Sec. 16(e))
Clarification of
Would require FEMA to issue regulations and revise materials that are
No comparable provision.
Replacement Cost
provided to policyholders using “plain language” and easy to
Provision, Forms, and
understand terms and concepts. Would require the Director to: (1)
Policy Language
issue regulations to clarify the applicability of replacement cost
coverage under the NFIP; (2) revise any regulations, forms, notices,
guidance, and publications to more clearly describe the meaning of full
cost of repair or replacement under the replacement cost coverage; and
(3) revise the language in flood insurance policies regarding rating and
coverage, such as classification of buildings, basements, crawl spaces,
detached garages, enclosures below elevated buildings, and
replacement cost, to make it consistent with language used widely in
homeowners policies. (Sec. 19)
Authorization for Staff
Would authorize to be appropriated such sums of money as may be
No comparable provision.
Funding
necessary to hire additional staff to carry out the responsibilities of the
Director pursuant to this act. (Sec. 20)
Source: Congressional Research Service.