History of the National Flood Insurance Program

1. History of the National Flood Insurance Program 1968-2010

2. Topic Objectives • To give some idea of the many, many issues that have been grappled with to create and manage the NFIP, and to keep it successful • To give the person who would really like to help out, resources that can be studied to learn why the NFIP operates as it does • To remind that persons who do not learn their history are doomed to repeat it

3. The Needs – People vs. Hurricanes • The Starting Point is not 1968 • Consider Galveston in 1909 • No Flood Insurance • No effort to mitigate loss to life and property

4. The Needs – People vs. Rivers • River flooding causes as much damage as hurricanes • Consider where hurricanes go after landfall • Consider the 1927 Flood • These things will happen again

5. Study, Study, Study – Private Studies • The American Insurance Association Study of 1956 • Private industry cannot do it • Reason: Only those at highest risk buy it • This hasn’t changed

6. Study, Study, Study – Public Studies • President Johnson’s 1967 Report to Congress • Four Possibilities - Purely Private - Private but Government backed - Purely Government - Government with Private assistance

7. National Flood Insurance Act of 1968 • Part of the HUD Act of 1968 with the Urban Property Protection & Reinsurance Act of 1968 (created the position of Federal Insurance Administrator) • Regular Program • Emergency Program – created in 1969 • Insurance sold by National Flood Insurers Association (NFIA) – Premium equalization payments paid annually to offset premium shortfall • No initial capitialization • Mudslide coverage added in 1969

8. Program Structure • Regular Program • Flood Insurance made available in exchange for community enforcement of FPM standards • Subsidized rates for existing structures/actuarial rates for new structures • Flood Insurance Rate Study and Map (FIRM) • Emergency Program - 1969 • Limited amounts of insurance • Subsidized rates only • Flood Hazard Boundary Maps (FHBM)

9. Tropical Storm Agnes - 1972 • Hit Southern Tier of NY, Northeast/Central PA, MD, DC, VA • Very little flood insurance in force – Wilkes-Barre, PA had 29 policies • Highlighted the need for incentives to participate and to buy flood insurance

10. Flood Insurance Protection Act of 1973 • Established Mandatory Purchase Requirements • Required FIA to notify all flood-prone communities (approx. 20,000) by June 30, 1974 of their special flood hazard areas (SFHA) • Notification done in the form of a Flood Hazard Boundary Map (FHBM) • Communities required to participate within one year of notification or be denied Federal assistance and Federally-backed mortgages in SFHA • Eagleton Amendment (1975) exempted conventional mortgage loans • Increased policy limits • Added erosion coverage because of rising levels of the Great Lakes

11. FIA/NFIA Dispute - 1977 • Dispute over program authority and financial control • FIA position – Secretary of HUD, not NFIA, had ultimate authority over program policy and authority to audit NFIA financial records • FIA opted to exercise Part B of 1968 Act – all Federal program using industry resources • EDS served as NFIP Servicing Agent • Began a period of tension with the private insurance industry

12. FEMA - 1979 • Brought into FEMA: • Federal Insurance Administration (HUD) • Federal Disaster Assistance Administration (HUD) • United States Fire Administration (Commerce) • Federal Preparedness Administration (GSA) • Defense Civil Preparedness Administration (DOD)

13. 1980’s • Two key goals: • Make the NFIP self-supporting for the average historical loss year by 1988 (reached goal in 1986) • Re-involve the insurance industry in the NFIP (Write Your Own Program)

14. Self-supporting Goal • Required gradual increase in subsidized rates • Basement limitations on finished portions • Appropriations required to repay funds borrowed in 1970’s and 1980’s ($1.2 billion) • Revised V-Zone methodology to reflect wave surge • Hurricane Alicia (1983) – resulted in denying coverage for illegal enclosures in V-Zones • Federal Policy Fee established in 1986 to pay NFIP expenses previously paid by appropriations

15. Reinvolvement of Insurance Industry • Write Your Own (WYO) Program created in 1983 • NFIP Servicing contract moved from EDS to CSC – required dual role of operating NFIP Direct Program and providing bureau and statistical support to WYO companies and FIA

16. WYO Program • 80+ private insurance companies – sell and service NFIP policies under their own name • Expense Allowance – 30% of premium • 15% agents commission • 13% company expenses • 2% State premium tax • Based on A.M. Best Aggregates and Averages • WYO Arrangement

17. Midwest Floods – 1993 • Very low market penetration – only about 10% of damaged properties insured against flood • Highlighted need for stricter lender compliance and marketing • Galloway Study and Report • Highlighted the need for better community compliance and flood mitigation

18. National Flood Reform Act of 1994 • Strengthened mandatory purchase requirements – penalties on lenders for non-compliance • Increased Cost of Compliance (ICC) coverage added to policy for substantially-damaged structures • Created Flood Mitigation Assistance Fund (funded by Federal Policy Fee) • Community Rating System (CRS)

19. Map Modernization Program • Inadequacy of funding from Federal Policy Fee to update maps ($50 million per year) • First program appropriation since 1986 • As of Sept. 2009, 81% of the nation’s population had a new final or draft FIRM • Map Mod has now evolved into RiskMap

20. SFIP Rewrite Project in 2000 • The flood policy is both a contract and a federal regulation – it has both carrots and sticks • Rewritten pursuant to President Clinton’s plain language initiative • Express Preemption Clause clarified to bar state bad faith claims

21. Hurricane Isabel - 2003 • Highlighted need for better agent training • Lack of consumer knowledge of NFIP and insurance principles • The unenviable position of the state insurance commissioners • The Moffett & Howell lawsuits

22. Flood Insurance Reform Act of 2004 • Severe repetitive loss • Definition • Funding • Summary of Coverage, including claims history • Claims Handbook – explains claims adjustment process • Claims Appeal Process

23. Hurricane Katrina - 2005 • 166,000 losses • $16 billion paid • $16 billion borrowed from Treasury

24. Post Katrina Hearings and Investigations • Evaluated Program’s response to its most difficult challenge • Reviews by: Congress State A.G.’s GAO Media FEMA – IG Trial Lawyers

25. NFIP 2009 Listening Meeting • FEMA reached out for new ideas • Interested Groups were many and varied • An example of American Government at its finest • It was also why we concluded we needed to teach our history

26. Where From Here Please get involved, but also, please learn our history. Please help us move forward, but also, please learn where we’ve been, and why.