House Passes Private Flood Insurance Bill by Unanimous Vote

U.S. House Flood Insurance Biggert-Waters Act

On April 28, the U.S. House of Representatives passed the Flood Insurance Market Parity and Modernization Act (H.R. 2901) by a unanimous vote of 419-0. The bill, which was introduced in June 2015 by Rep. Dennis Ross, R-Lakeland, and co-sponsor Patrick Murphy, D-Jupiter, is intended to encourage the use of private flood insurance. The bill, among other changes:

(i) Amends the definition of “private flood insurance” to, among other changes, remove the requirements that a private flood insurance policy include deductibles, exclusions, conditions, cancellation provisions, and mortgage interest (i.e., loss payee) clauses comparable to National Flood Insurance Program (“NFIP”) policies. The amended definition of “private flood insurance” would only require that the policy (1) be issued by an insurance company that is approved to provide insurance in the state where the building is located, and (2) provide flood insurance in compliance with that state’s laws.     

(ii) Removes amendments made by the Biggert-Waters Flood Insurance Reform Act that required the federal banking agencies to adopt regulations requiring lenders to accept private flood insurance policies if they met the definition of “private flood insurance,” and replaces such provisions with a definition of the minimum amount of private flood insurance necessary to satisfy the mandatory purchase requirements (which is the same as the minimum amount of NFIP insurance necessary to satisfy the mandatory purchase requirements--i.e., coverage that is at least equal to the insurable value of the building, the outstanding principal balance of the loan, or the maximum coverage available under the NFIP);

(iii) Requires federal agency lenders (i.e., federal agencies that make direct loans secured by improved real estate or a mobile home) to accept private flood insurance policies meeting the scaled-back definition of “private flood insurance” as long as such policies provide the minimum amount of required insurance;

(iv) Requires Fannie Mae and Freddie Mac to accept private flood insurance policies meeting the scaled-back definition of “private flood insurance” as long as (a) such policies meet Fannie Mae and Freddie Mac’s requirements relating to the financial strength of the private insurance company, and (b) the financial strength requirements do not affect or conflict with state laws, regulations, or procedures regulating the business of insurance; and

(v) Ensures that borrowers who purchase private flood insurance policies will not lose eligibility for subsidies under the NFIP as long as coverage remains continuous.

Although the bill has received support from a broad range of industry and consumer groups, some believe that it may undermine the ability to ensure that the terms of private flood insurance policies provide sufficient protection.