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Flood Insurance Program Extended for 60 Days, Five-Year Deal Looms

President Obama has signed legislation extending the National Flood Insurance Program (NFIP) for 60 days, until July 31, 2012. While this may appear to be another in a decade-long string of short term reauthorizations, it is actually more
June 6, 2012

President Obama has signed legislation extending the National Flood Insurance Program (NFIP) for 60 days, until July 31, 2012. While this may appear to be another in a decade-long string of short term reauthorizations, it is actually more. Democrats and Republicans in the Senate, where a long term bill had been stalled, are now committed to getting a comprehensive bill passed and enacted within this 60 day extension period.

Senate Majority Leader Harry Reid (D-Nev.) announced an agreement with Sen. David Vitter (R-La.) that he will bring the Senate’s 5-year NFIP extension bill to the floor for a vote during the extension. Furthermore, it is the intent of the Majority Leader to pass the Senate five-year bill, work out the differences between the House and Senate bills and have a final passage of a comprehensive five year reform bill for the President to sign – all within the 60 day period.

“For the first time in a very long time, a consensus seems to have formed around the need to enact a long-term reauthorization of the NFIP which incorporates needed reforms,” said Mike Becker, assistant vice president of federal affairs of PIA National. “Even more significant is the commitment from leadership in the Senate to pass a bill, reconcile it with House-passed legislation and send it to President Obama for his signature, all in the next 60 days.”

“In light of this commitment, we are cautiously optimistic that the NFIP can finally be put on a sound footing for many years, providing needed certainty and ending the off-again, on-again stopgap reauthorizations, which is no way to run a flood insurance program,” Becker said. “We congratulate Senate Majority Leader Harry Reid (D-Nev.) and Sen. David Vitter (R-La.) for this achievement in forging the consensus needed to move forward.”

Phase-out of subsidized premiums for vacation and second homes

Additional language was added to the short-term extension passed in the Senate on May 24, in the House on May 30 and signed by President Obama that phases out premium subsidies for vacation homes and second homes. The flood insurance premiums of residential properties that are not the primary residence of an individual will increase by 25 percent a year until the average risk premium equals the actuarial rate. This provision is permanent (not limited to the 60 day extension) and goes into effect July 1, 2012. The Congressional Budget Office estimates that this change will generate $2.4 billion in new premium over ten years.

The subsidy phase out, put simply, means that owners of second homes and vacation homes that have flood insurance through the NFIP will face increased premiums beginning July 1. Currently, most second home and vacation home premiums are “subsidized,” but that means the total premiums being collected are less than what the indemnity payout is expected to be. This subsidy is not an exposure to taxpayers – nobody receives a ‘subsidy check’ or a tax credit – it is simply less premium income than the NFIP could be taking in. The reduction of subsidies is important because the NFIP is nearly $18 billion in debt, the result of shock losses from 2005’s Hurricane Katrina which Congress has failed to reconcile.

Although from the perspective of budget responsibility, PIA supports the phase-in of actuarially-sound rates, the devil can be in the details. A phase-in -- as opposed to doing it all at once – is prudent because it protects against destabilizing the real estate markets, which could occur if you tried to adjust everything overnight.

President Obama Signs 60-Day NFIP Bill (National Underwriter 6/1/12)

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