Letter Sent to Address NFIP Reauthorization Concerns

A quick update on reauthorization of the NFIP. Below is a letter we sent recently to our congressional delegation, Commissioner Ducrest, the ABA and ICBA, that provides our concerns on the seven bills that came out of committee in the U.S. House of Representatives.  We expect the House of Representatives to vote on these bills sometime in July.  We are more hopeful the Senate will have a more constructive approach to the issue and keep at the forefront affordability and availability of flood insurance. 

June 27, 2017 

Dear Louisiana Congressman:

On behalf of the Louisiana Bankers Association, we are writing to express some of our concerns with pending legislation in the U.S. House of Representatives to reauthorize and reform the National Flood Insurance Program (NFIP). LBA strongly supports a timely reauthorization of the NFIP before it expires at the end of September. Allowing the program to expire, as has unfortunately occurred numerous times in the past, is harmful to commerce as it leads to delays or stoppages of real estate closings. LBA also strongly supports reforms to the NFIP that make the program sustainable and affordable for the long-term. As a member of the Louisiana Congressional Delegation, we know that you know the importance of sustainable and affordable flood insurance to Louisiana’s citizens and businesses. We appreciate your efforts on this issue. 

It is worth noting that LBA is a member of the Coalition for Sustainable Flood Insurance (CSFI), which is led by Greater New Orleans, Inc. We are thankful for the great advocacy work GNO, Inc. has done, and continues to do, on flood insurance related issues. The vast coalition that has been formed under their leadership includes members from all around the country and makes clear that flood insurance is an issue of national importance, not just an issue for coastal states. 

LBA strongly supports the four primary policy areas (Mitigation, Mapping, Affordability and Program Participation) CSFI has focused on that were highlighted in recent testimony before the House Financial Services Committee. LBA also shares many concerns of the CSFI with legislative proposals that were recently passed by the House Financial Services Committee, which are now ready for consideration on the House Floor. 

LBA opposes numerous provisions contained in H.R. 2874 by Rep. Duffy. Specifically, we are very concerned about a provision in Section 506 of the bill that prohibits grandfathering of rates for properties beginning on or after January 1, 2021. Based on the differing interpretations we have received, it is unclear whether this provision impacts currently grandfathered properties, or only properties that would otherwise be eligible to receive grandfathered rates on or after January 1, 2021. We oppose any removal of grandfathered rates as it unfairly punishes people that built to the requirements in place at the time of construction. Removing grandfathering would cause the premiums on some properties to skyrocket and could devastate some communities in Louisiana. 

LBA also opposes a provision in Section 506 of the bill that will prohibit offering NFIP coverage for new construction in the Special Flood Hazard Areas on or after January 1, 2021, and a provision that will prohibit any new or renewed coverage for any residential property having 4 or fewer residences and a replacement value of the structure (exclusive of the value of the real estate on which the structure is located) of $1,000,000 or more (subject to other provisions in proposed law). The prohibition of coverage on new construction could be extremely harmful to development in certain areas of the state where new housing is needed, and the prohibition of coverage on certain high-value properties raises a number of practical and fairness concerns and appears to lessen the NFIP risk pool. 

LBA also opposes Section 502 contained in H.R. 2874 that would increase annual surcharges on many policyholders, and opposes Section 101 that would raise the minimum annual premium rate increases from 5% to 8%. We are told that the increase in minimum annual premium rates will impact pre-FIRM subsidized homeowners, which we are told is about 20% of NFIP properties. It is our understanding that this provision could also impact grandfathered post-FIRM properties if the provisions removing grandfathering discussed above are implemented. Property owners subject to the minimum increase are already experiencing yearly increases in their premium rates and raising the minimum increase by 60% could make coverage unaffordable for many policyholders. 

LBA also has strong concerns with provisions in H.R. 2874 that would eliminate coverage for properties with excessive lifetime claims (Section 505), defined in the bill as claims exceeding twice the replacement value of the structure. We have similar concerns with H.R. 1558 by Rep. Royce that could impose sanctions, including suspension or probation from NFIP, on communities that may have relatively few Severe Repetitive Loss (SRL) properties, if they fail to implement mitigation plans. Working to address concerns with SRL properties makes sense, but any changes on this front must be done in a thoughtful way that does not unreasonably harm citizens and their communities by abruptly making coverage unavailable. 

Finally, we point out two LBA-opposed provisions contained in House legislation that specifically impact banking. Section 508 of H.R. 2874 will increase the civil money penalties (from $2,000 to $5,000) on federally regulated lenders for failure to comply with the NFIP’s mandatory purchase requirement. We note that the penalties were increased during the last reauthorization of the NFIP and since that time no evidence has been presented to us that suggests there is a problem with non-compliance with the mandatory purchase requirement. In fact, the feedback we have received from banks and bank regulators is that there is an extremely high rate of compliance with an extremely low number of violations being cited during the regular exams that banks undergo. We are aware of some misinformation that was put out by FEMA a couple of years ago that suggested a high non-compliance rate, but FEMA representatives have since acknowledged that they do not have reliable data or information on this issue. We also worry that this provision may be used to levy fines against lenders for flood-related violations that are unrelated to not having coverage in place. 

LBA also opposes Section 2 contained in H.R. 2246 by Rep. Luetkemeyer. This provision would eliminate the NFIP’s mandatory purchase requirement for all commercial properties. We believe this provision would lead to a significant reduction in NFIP premiums collected, and lessen the risk pool of the program. We believe Congress should be pursuing policies that increase NFIP participation, not decrease it. LBA is also concerned that removing the commercial mandatory purchase requirement will create a competitive advantage in favor of the very largest banks, and to the detriment of community and regional banks. Larger banks may be willing and able to accept greater risk and forego flood insurance coverage on certain commercial loans, while smaller banks may not be willing or able to do so. Ultimately, this may create greater risk for larger banks and some of their commercial loan customers by leaving them without flood insurance coverage or with insufficient coverage. 

Sincerely,

Robert T. Taylor
LBA Chief Executive Officer

Joe Gendron
LBA Director of Government Relations