Federal Flood Insurance: The Repetitive Loss Problem

Publication Date: June 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Business

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Abstract:

Historically, flooding has been the most common natural disaster in the United States, costing more in property damages than any other natural disaster. In response to the trend of building homes and businesses in flood-prone areas and the increasing cost of damages caused by floods, Congress created the National Flood Insurance Program (NFIP) in 1968. The object was to reduce future flood losses through flood hazard identification, floodplain management (i.e., land use controls and building codes), and insurance protection. NFIP coverage is available to all owners and occupants of insurable property in a participating community.

Two flood insurance-related policy issues stand out in the 109th Congress. The first issue is the high and continuing cost of paying for repetitively flooded properties, and clarifying congressional intent with respect to restoring flood victims to pre-flood conditions. The problem with repetitive loss properties (RLPs) is that the vast majority of these older, generally less-safe properties were "grandfathered" into the NFIP when the program was created, and these properties have been repaired multiple times with subsidized flood insurance claim payments. Owners of RLPs pay less than the full actuarial risk rates. Congress started looking at the RLP problem (and other matters) several years before the National Flood Insurance Reform Act of 1994. The Flood Mitigation Assistance (FMA) Program was authorized as Section 1266 in 1994, and has largely been used to mitigate RLPs. The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (P.L. 108-264), signed into law on June 30, 2004, doubled the authorization for that program but did not change its focus, despite some adjustment of priorities. The 2004 Act also added two new programs that are focused on RLPs -- the Pilot Program and the Individual Property program. Although the statute authorized $40 million a year for the Pilot program, subject to annual appropriations, the Administration's budget request for FY2006 did not include funding. Legislation to appropriate the funds (H.R. 2360) is pending.

The second issue, which involves the adequacy of payments and the clarity of policies and procedures for filing and adjusting flood insurance claims after Hurricane Isabel in September 2003, was initially addressed by provisions in the 2004 act that made some programmatic changes to the NFIP and required several studies and reports.

This report traces the evolution of the NFIP and provides background information on the program. This is followed by a brief discussion of the problem of repetitively flooded properties and the mitigation program administered by FEMA. A summary of the major provisions in the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 is included. The report does not examine other important NFIP-related issues involving coastal erosion, the Coastal Barriers Resources System, market penetration, lender compliance, and NFIP financial conditions and managing systems.

This report will be updated to reflect significant legislative action.