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[Senate Report 112-98]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 250
112th Congress                                                   Report
                                 SENATE
 1st Session                                                     112-98

======================================================================

 
          FLOOD INSURANCE REFORM AND MODERNIZATION ACT OF 2011

                                _______
                                

                December 5, 2011.--Ordered to be printed

                                _______
                                

 Mr. Johnson of South Dakota, from the Committee on Banking, Housing, 
               and Urban Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 1940]

    The Committee on Banking, Housing, and Urban Affairs, 
having had under consideration an original bill (S. 1940) to 
amend the National Flood Insurance Act of 1968, to restore the 
financial solvency of the flood insurance fund, and for other 
purposes, having considered the same, reports favorably thereon 
and recommends that the bill do pass.

                              INTRODUCTION

    On September 8, 2011, the Senate Committee on Banking, 
Housing, and Urban Affairs considered a Committee Print, 
entitled ``The Flood Insurance Reform and Modernization Act of 
2011,'' a bill to modernize and bring financial solvency to the 
National Flood Insurance Program, and for other purposes. The 
Committee voted unanimously to report the bill to the Senate.

                               BACKGROUND

    Congress established the National Flood Insurance Program 
(NFIP) in 1968 after finding that floods have ``created 
personal hardships and economic distress which have required 
unforeseen disaster relief measures and have placed an 
increasing burden on the Nation's resources.'' (P.L. 90-448) 
After flooding events, including flooding in the 1950s, federal 
disaster assistance was paid out to communities and 
individuals. In establishing the flood insurance program, 
Congress wanted to create ``a reasonable method of sharing the 
risk of flood losses through a program of flood insurance which 
can complement and encourage preventive and protective 
measures.'' (P.L. 90-448) The NFIP includes three essential 
components to reduce the impact of flooding on lives and 
property: prevention, mitigation, and insurance.
    Today, over 40 years later, more than 21,000 communities in 
all 50 States, the District of Columbia, and the U.S. 
territories, now participate in the NFIP. Communities that 
choose to participate in the NFIP undertake mitigation efforts, 
regulate land use, and implement responsible building codes for 
new development to reduce the threat to lives and property. 
Buildings in Special Flood Hazard Areas, frequently referred to 
as the 100-year floodplain, are required to meet these building 
code requirements and, if mortgaged with a federally-regulated 
lender, are required to purchase flood insurance. Flood 
insurance is also available in areas outside of the Special 
Flood Hazard Area in participating communities, though federal 
law does not require that it be purchased. The Federal 
Emergency Management Agency (FEMA), which administers the NFIP, 
provides flood hazard data, maps, and tools that are used by 
communities in carrying out their responsibilities. These maps 
are also used by lenders and insurance companies for compliance 
and insurance purposes.
    Nearly thirty years ago, in an effort to meet Congressional 
intent that the program be ``carried out to the maximum extent 
practicable by the private insurance industry'' and through 
``cooperative efforts'' (P.L. 90-448), NFIP formed a public-
private partnership with private sector insurance companies, 
known as Write Your Own (WYO) companies. Under this 
partnership, WYO companies handle the sale and administration 
of flood insurance policies while the federal government bears 
the insurance risk and pays claims from the National Flood 
Insurance Fund. Roughly 85 percent of flood policies are sold 
through WYO companies with the rest sold through the NFIP 
directly, by private insurance agents. The NFIP pays the WYO 
companies for their administration of the policies based on 
expenses incurred in other comparable lines of insurance, not 
their actual costs incurred for NFIP. In 2011, FEMA estimates 
that 30 cents of every premium dollar will be used to pay for 
administration. Of this amount, WYO companies are expected to 
earn roughly 11 cents of every premium dollar for 
administrative expenses and 3 cents to cover costs associated 
with adjusting claims and about 14 cents per dollar is 
allocated for agent commissions. WYO compensation for claims 
adjustments adjusts with the volume of claims, and has 
constituted a much higher percentage of premium income in high-
claims years.
    Today, there are more than 5.6 million flood insurance 
policies in force providing over $1.2 trillion in coverage to 
individuals and businesses. The NFIP has made flood insurance 
available to the general public, especially those most at risk. 
Yet, there are a number of challenges currently facing the 
program which is roughly $17.75 billion in debt in the wake of 
large losses in 2004 and 2005. Significant challenges include 
subsidized rates for certain properties, low participation 
rates, and non-compliance with mandatory purchase requirements, 
among others. These challenges have contributed to doubts about 
the financial soundness of the NFIP and its ability to be self-
sustaining going forward, absent reform.
    Properties with buildings that were built prior to the 
inception of the NFIP and the completion of flood insurance 
rate maps (pre-FIRM properties) pay subsidized rates as 
intended by Congress. Congress believed that it was inequitable 
to require these property owners to pay actuarial rates, given 
that the structures were built prior to rate maps and knowledge 
of the risk and because actuarial premiums on these properties 
might be prohibitively expensive. Yet the cumulative effect of 
subsidized premiums for insuring these properties leaves the 
NFIP with fewer funds available to pay losses, especially in 
years with losses higher than anticipated for an average 
historical loss year. The NFIP estimates that $1.5 billion in 
premium revenue is foregone annually due to subsidized rates--
this is equal to half of the $3 billion the NFIP currently 
collects in premiums. Nearly 22 percent of policies are priced 
using subsidized pre-FIRM rates. While Congress initially 
believed that over time pre-FIRM properties would be lost to 
flood, rebuilt, or mitigated, the phase-out of pre-FIRM 
properties has been slow. Modern construction techniques have 
extended the useful life of these buildings. To address the 
most at-risk properties, in 2004 Congress established the 
Severe Repetitive Loss Pilot program to mitigate those 
properties that experienced multiple flood losses. These 
properties remain a challenge to the NFIP, and Congress intends 
for FEMA to move toward further mitigation and actuarial 
pricing with respect to these pre-FIRM properties.
    Rate subsidies have not been the only financial challenge 
to the NFIP. Flood maps are a critical component of the NFIP as 
they help identify risk, inform property owners, and help set 
boundaries of mandatory purchase requirements and rates. By the 
early 2000s, maps were outdated and, in many cases, inaccurate. 
FEMA, at the direction of Congress, has made significant 
progress in the last eight years updating data and flood maps 
and providing new tools to communities throughout the United 
States, thereby providing residents with a more accurate 
assessment of flood risks. As maps have been modernized to 
reflect current flood risks, some property owners have found 
themselves drawn into Special Flood Hazard Areas and subject to 
mandatory purchase requirements by their lenders, while roughly 
the same number have been removed from such areas and relieved 
of such requirements. While map modernization can be met with 
skepticism within communities, Congress believes that it is 
crucial in order to warn property owners about their flood 
risks and to ensure that insurance premiums are risk-based.
    Participation in the program is not as robust as Congress 
anticipated. Since 1973, the purchase of flood insurance has 
been required for properties in the 100-year floodplain with 
federally-regulated mortgages. Such mandatory purchase is 
enforced through lenders and federal banking regulations, yet 
the compliance rate in covered areas is estimated to be as low 
as 50 percent (GAO Testimony, June 23, 2011). Voluntary 
purchases by property owners, either by those property owners 
without federally-backed mortgages or those with property 
outside areas requiring purchase, are low even when such 
properties are exposed to heightened risk.
    Various levels of flood risk also exist outside the 
currently mapped 100-year floodplain. While there are only a 
small percentage of insured structures outside the 100-year 
floodplain, about 30 percent of all current NFIP policies, they 
account for a little over 20 percent of all NFIP losses. In 
addition, structures in ``residual risk areas,'' including 
those protected by flood control structures such as dams or 
levees, are not currently required to purchase flood insurance. 
While the risk of flooding for these properties may be low, a 
flooding event caused by a breached or overtopped dam or levee 
is likely to be widespread and cause significant flood damage. 
Current mapping designations may not account for the nature of 
the risk and level of protection offered by such structures, 
which may lead consumers to underestimate their true risk of 
flood damage.
    These and other financial challenges facing the NFIP call 
into question whether the program is actuarially sound in the 
aggregate and whether it can remain financially viable absent 
reform. While the program has been largely self-sustaining, the 
catastrophic nature of the 2005 hurricane season, coupled with 
the flood losses of 2004, has left FEMA heavily indebted to the 
U.S. Treasury. Due to the structure and the current financial 
situation of NFIP, reforms are needed.

                       PURPOSE OF THE LEGISLATION

    This legislation makes several key reforms to ensure that 
the NFIP can continue to operate, adequately identify areas at 
risk of flood loss, inform property owners of their risks, 
improve local mitigation options, ensure that at-risk property 
owners purchase and maintain coverage and be self-sustaining.
    This legislation will require FEMA to review flood 
insurance rates and use actuarial principles in setting those 
rates. FEMA will also be required to review and conduct 
rulemaking on WYO company payments so that reimbursements and 
actual administrative expenses are aligned. FEMA will also be 
required to build up, over time, a reserve fund equal to one 
percent of all insurance in force so that it can pay for flood 
claims in high loss years. These changes are designed to 
protect the taxpayer from having to lend taxpayer dollars to 
pay for flood insurance claims in all but the most catastrophic 
loss years. While most property owners are not expected to face 
significant increases in charged premiums as a result of this 
bill, certain structures will, over time, be required to pay 
actuarial rates: non-primary residences, including vacation 
homes and businesses, severe repetitive loss properties and 
properties substantially damaged or improved.
    Under this bill, additional property owners will be 
required to purchase flood insurance. This legislation will 
require flood coverage for property owners in residual risk 
areas, those behind levees, downstream from dams, and near 
other flood control structures. Flooding events and losses in 
such areas in 2011 have demonstrated the need for purchase 
requirements with pricing reflecting the actual level of risk 
and flood protection. Property owners in the 100-year 
floodplain with mortgages provided through state-regulated 
lending institutions will now also be required to purchase 
flood insurance. In addition, the bill requires that flood 
insurance premiums be escrowed to ensure continuity of 
insurance coverage. Notice will be provided to property owners 
in the 500-year floodplain to inform them of their flood risks, 
which may lead to more owners protecting their properties 
through flood insurance.
    The legislation also establishes a map modernization 
program so that maps continue to be updated, made more 
accurate, and readily available. The Technical Mapping Advisory 
Council is re-established to ensure that FEMA adopts meaningful 
standards for mapping that are consistent and based on the most 
accurate data and information.
    Mitigation of risks remains an important component of the 
NFIP. This legislation updates FEMA's existing mitigation grant 
programs to streamline and improve communities' access to 
existing mitigation funds. Among the streamlined programs is 
the Severe Repetitive Loss Program.
    The bill also establishes a Commission on Natural 
Catastrophe Risk Management and Insurance that is to examine 
the risks posed to the United States by natural catastrophes 
and means for mitigating those risks and paying for losses, and 
report to Congress on its findings and recommendations. The 
Commission's examination is not limited to floods, but other 
types of natural catastrophes as well, such as hurricanes, 
earthquakes, volcanic eruptions, tsunamis, tornados, wildfires, 
and droughts.

                                HEARINGS

    Building upon the numerous hearings the Committee held in 
the 109th and 110th Congresses, the Committee heard testimony 
in the 111th Congress on September 22, 2010, regarding 
proposals to reform the NFIP. The witnesses were: The Honorable 
Roger Wicker, United States Senator, Mississippi; the Honorable 
Richard Durbin, United States Senator, Illinois; Ms. Orice 
Williams Brown, Director of the Office of Financial Markets and 
Community Investment, U.S. Government Accountability Office; 
Ms. Sally McConkey, Vice Chair, Association of State Floodplain 
Managers; Mr. J. Nicholas D'Ambrosia, Vice President of 
Training and Recruiting, Long & Foster Companies on behalf of 
the National Association of Realtors; and Mr. Stephen Ellis, 
Vice President, Taxpayers for Common Sense.
    In the 112th Congress, the Committee held two hearings 
regarding proposals to reform the NFIP. On June, 9, 2011, the 
witnesses testifying were: The Honorable Roger Wicker, United 
States Senator, Mississippi; and the Honorable William Craig 
Fugate, Administrator, Federal Emergency Management Agency. On 
June 23, 2011, the witnesses were: Ms. Orice Williams Brown, 
Director of the Office of Financial Markets and Community 
Investment, U.S. Government Accountability Office; Mr. Chad 
Berginnis, Associate Director, The Association of State 
Floodplain Managers; Mr. Adam Kolton, Executive Director, 
National Advocacy Center, National Wildlife Federation, on 
behalf of the Smarter Safer Coalition; Mr. Barry Rutenberg, 
First Vice Chairman of the Board, National Association of Home 
Builders; Mr. Travis B. Plunkett, Legislative Director, 
Consumer Federation of America; and The Honorable Scott H. 
Richardson, Partner, Richardson and Ritchie Consulting.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

    Flood Insurance Reform and Modernization Act of 2011.

           TITLE I--FLOOD INSURANCE REFORM AND MODERNIZATION

Section 101. Short title

Section 102. Findings

Section 103. Definitions

    Includes definitions of 100-year floodplain, 500-year 
floodplain, Administrator, National Flood Insurance Program, 
and Write Your Own.

Section 104. Extension of National Flood Insurance Program

    Reauthorizes the National Flood Insurance Program, and 
financing authority, through 2016.

Section 105. Availability of insurance for multifamily properties

    Allows multifamily residential buildings, designed for 
occupancy of more than four families, to purchase flood 
insurance up to the limits for business properties.

Section 106. Reform of premium rate structure

    Requires the following pre-FIRM properties to pay actuarial 
rates (rates that reflect the true risk of flooding) phased in 
over four years: non-primary residences; severe repetitive loss 
properties; any properties where flood losses have exceeded the 
property value; any business property; and any property that 
has sustained substantial damage or substantial improvement.
    Requires that any premiums for a new flood insurance policy 
for a property not covered by a flood insurance policy as of 
the date of passage must be based on actuarial rates.
    Allows FEMA to increase premiums by 15 percent per year, an 
increase from the current 10 percent cap on annual increases.
    Adds a requirement for FEMA to allow policyholders that are 
not required to have their premiums escrowed every month with 
their lender to pay their premiums in installments. FEMA 
currently requires a single annual premium payment.

Section 107. Mandatory coverage areas

    Expands the mandatory flood insurance purchase requirement 
to encompass ``residual risk areas,'' including areas located 
behind a flood control structure, such as a levee or dam. Once 
residual risk areas in the United States are mapped, properties 
in these areas will be required to purchase flood insurance. 
The price of such policies must accurately reflect the actual 
level of flood protection provided by the flood control 
structure in the area, regardless of a flood control 
structure's certification status. With this requirement, 
policyholders protected by strong flood control systems will 
benefit from policies reflecting their lower levels of risk. 
Similarly, even policyholders near decertified flood control 
systems will receive appropriate credit for the protection 
provided by their local system.

Section 108. Premium adjustment

    Requires that properties mapped into the 100-year 
floodplain must pay rates reflecting their new risk 
designation. Properties covered by flood insurance at the time 
of re-mapping, as well as newly mapped properties, will have 
the new rates phased-in over four years, with 40 percent of the 
increase assessed in the first year, and assessments of 20 
percent in each of the next three years.

Section 109. State chartered financial institutions

    Requires the mandatory purchase of flood insurance for 
properties located in the 100-year floodplain with mortgages 
provided by state-regulated lending institutions. Mandatory 
purchase is already required for properties with mortgages 
provided by federally-regulated lending institutions.

Section 110. Enforcement

    Increases penalties for lenders that fail to ensure 
compliance with flood insurance purchase requirements. 
Penalties are increased from $350 to $2000 per violation. This 
section also removes the limit on annual penalties.

Section 111. Escrow of flood insurance

    Requires that lending institutions escrow flood insurance 
payments for properties that are located in mandatory purchase 
areas.

Section 112. Minimum deductibles for claims under the National Flood 
        Insurance Program

    Sets minimum deductibles. Minimum pre-FIRM property 
deductibles will be: (a) $1,500 if the property is insured for 
$100,000 or less; or (b) $2,000 if the property has over 
$100,000 in coverage. Minimum post-FIRM property deductibles 
will be: (a) $1,000 for those with $100,000 of coverage or 
less; or (b) $1,250 if the coverage is greater than $100,000.

Section 113. Considerations in determining chargeable premium rates

    Requires FEMA to use actuarial principles in determining 
rates, and to consider catastrophic loss years in the 
calculation of the average historical loss year. FEMA prices 
premiums to cover, in aggregate, claims expected in an average 
historical loss year.

Section 114. Reserve fund

    Requires FEMA to build up a reserve fund to help cover 
losses in years where claims are higher than expected as 
compared to losses in an average historical loss year. The 
reserve fund must maintain a balance equal to a reserve ratio 
of one percent of the sum of the total potential loss exposure 
of outstanding policies. In order to reach this requirement, 
FEMA will be required to put at least 7.5 percent of the 
reserve ratio into the fund each year until the reserve ratio 
is achieved.

Section 115. Repayment plan for borrowing authority

    Requires the NFIP Administrator to submit a report and a 
repayment plan to the U.S. Department of Treasury and Congress 
Committees whenever FEMA has to borrow funds to pay for claims 
under the NFIP.

Section 116. Payment of condominium claims

    Clarifies that condominium owners with flood insurance 
policies should receive claims payments regardless of the 
adequacy of flood insurance coverage of the condominium 
association and other condominium owners.

Section 117. Technical Mapping Advisory Council

    Re-establishes the Technical Mapping Advisory Council to 
ensure that FEMA adopts meaningful standards for updating and 
maintaining flood insurance rate maps. The Technical Mapping 
Advisory Council will be comprised of government officials and 
others with expertise in mapping. The Council will make 
recommendations to FEMA on how to improve the accuracy of maps 
and on standards that should be adopted for flood rate maps, 
data, map maintenance efforts and funding needs and strategy.
    Requires FEMA to report annually to Congress on 
recommendations made by the Technical Mapping Advisory Council, 
and actions taken by FEMA to address such recommendations.

Section 118. National Flood Mapping Program

    Requires FEMA to establish an ongoing mapping program to 
review, update and maintain flood insurance rate maps, 
including all areas within the 100-year and 500-year 
floodplains and residual risk areas, including those behind 
flood control structures. Requires that the most accurate data 
be used in mapping and maintenance, and requires that each map 
include certain elements to ensure consistency and accuracy. 
Authorizes $400 million annually for mapping. Directs FEMA to 
enhance communication and outreach to States, local 
communities, and property owners regarding mapping changes and 
mandatory purchase requirements.

Section 119. Scope of appeals

    Permits community map appeals to address the Special Flood 
Hazard Area boundary in addition to the Base Flood Elevation.

Section 120. Scientific Resolution Panel

    Establishes an independent Scientific Resolution Panel that 
will, in general, address mapping-related concerns from 
communities that are dissatisfied with the outcome of their 
appeal to FEMA. The provision would also authorize certain 
communities that have already been re-mapped to use the new 
Panel to rule on Letters of Map Revision.

Section 121. Removal of limitation on State contributions for updating 
        flood maps

    Removes the restriction that States may only contribute up 
to 50 percent of the cost of mapping and allows States to 
invest additional funds for mapping.

Section 122. Coordination

    Requires the various federal agencies to work together to 
coordinate mapping and risk determination budgeting, and 
requires the Office of Management and Budget, FEMA and others 
to submit a joint report to Congress within 30 days of the 
budget submission on crosscutting budget issues with respect to 
mapping.

Section 123. Interagency coordination study

    Requires FEMA to contract with the National Academy of 
Public Administration to conduct a study on how FEMA can 
improve interagency coordination on mapping and funding, and 
how FEMA can establish joint funding mechanisms with federal, 
State and local agencies to share the collection and use of 
data for mapping.

Section 124. Nonmandatory participation

    Reaffirms that those in the 500-year floodplain are not 
required to purchase flood insurance but requires that 
communities be given notice when they are mapped into a 500-
year floodplain, and requires lenders to give notice to 
purchasers or lessees of property in the 500-year floodplain.

Section 125. Notice of flood insurance availability under RESPA

    Amends the Real Estate Settlements Procedures Act (RESPA) 
and requires lenders provide a disclosure of the availability 
of flood insurance under the NFIP and whether or not the 
property is located in an area having special flood hazards to 
all purchasers.

Section 126. Participation in State disaster claims mitigation

    Requires FEMA, under certain circumstances, at the request 
of a State insurance commissioner, to participate in State 
sponsored, non-binding mediation to resolve insurance claims 
disputes when a disaster has been declared and claims for other 
types of insurance are also pending.

Section 127. Additional authority of FEMA to collect information on 
        claims payments

    Requires the NFIP to collect from WYO companies information 
and data as needed to determine the accuracy of the resolution 
of flood claims under NFIP flood insurance policies following a 
flood.

Section 128. Oversight and expense reimbursements of insurance 
        companies

    Requires that FEMA collect accurate and adequate 
information on WYO company expenses. Under this section, FEMA 
is required to develop a methodology for determining what WYO 
companies should be reimbursed for their activities under the 
NFIP. All WYO companies will be required to submit data based 
on that methodology. Using that data, FEMA will be required to 
conduct a rulemaking on reimbursement rates to ensure that WYO 
companies are being reimbursed based on actual expenses, 
including standard business costs and operating expenses. GAO 
will report to Congress on the efficacy of the rules.

Section 129. Mitigation

    Reforms and streamlines existing FEMA mitigation programs.

Section 130. Flood protection structure accreditation task force

    Requires FEMA and the Army Corps of Engineers, in 
cooperation with the National Committee on Levee Safety, to 
form a task force to better align the data that the Corps 
collects during levee inspections with the data required under 
FEMA's accreditation program.

Section 131. Flood in progress determinations

    Requires FEMA to conduct a study examining, among other 
things, the process for determining when a flood event has 
commenced or is in progress for purposes of NFIP flood 
insurance coverage. This section also clarifies the meaning of 
``eligible coverage'' for purposes of recent Missouri River 
flooding.

Section 132. Clarification of residential and commercial coverage 
        limits

    Clarifies current statutory limits on coverage of multi-
business commercial structures.

Section 133. Local data requirement

    Requires that FEMA re-map certain communities that were 
originally mapped using data not specific to the community, 
using locally relevant data.

Section 134. Eligibility for flood insurance for persons residing in 
        communities that have made adequate progress on the 
        construction, reconstruction, or improvement of a flood 
        protection system

    Requires the Administrator to provide flood insurance at a 
rate similar to that provided to people that reside behind a 
completed levee, to people who live behind a levee, or other 
flood control system, that is undergoing construction, 
reconstruction, or improvements which the Administrator deems 
to have met certain requirements regarding the current status 
of the levee and a timetable for completion of the project. 
Establishes a system of consultations between the levee owner 
and the Administrator to determine if the construction, 
reconstruction, or improvement project has a reasonable 
likelihood of completion on schedule.

Section 135. Studies and reports

    Requires FEMA to submit an annual report to Congress on its 
activities and financial health, including the amount paid in 
premiums; losses; expenses; number of policies; insurance in 
force; estimate of average historical loss year; and a 
description and amount of claims paid.
    Requires GAO to conduct a study of pre-FIRM structures and 
requires GAO, in consultation with the Department of Homeland 
Security Office of Inspector General, to review the three 
largest contractors used by FEMA in operating and managing the 
flood insurance program.

Section 136. Reinsurance

    Requires FEMA to conduct an assessment of the private 
reinsurance market's capacity to assume a portion of the NFIP's 
insurance exposure. The section clarifies that FEMA is 
authorized to secure reinsurance from the private market. It 
also requires FEMA to include in their annual report to 
Congress an assessment of NFIP's ability to pay claims, as well 
as any use of FEMA's authority to secure reinsurance.

Section 137. GAO study on business interruption and additional living 
        expenses coverage

    Requires the GAO to conduct a study on the possibility of 
including optional business interruption and/or additional 
living expenses coverage, and the effects that these optional 
coverage options could have on the NFIP.

Section 138. Policy disclosures

    Requires additional disclosures for policies under the 
NFIP, and provides for fines.

Section 139. Report on inclusion of building codes in floodplain 
        management criteria

    Requires FEMA to conduct a study and report to 
Congressional Committees regarding the impact, effectiveness, 
and feasibility of amending section 1361 of the National Flood 
Insurance Act of 1968 to include widely used and nationally 
recognized building codes as part of the floodplain management 
criteria.

Section 140. Study of participation and affordability for certain 
        policyholders

    Requires FEMA to conduct a study on possible methods to 
encourage and maintain participation in the NFLP, as well as 
making the NFIP more affordable for certain people through 
targeted assistance. The study also will include an economic 
analysis provided by the National Academy of Sciences.

Section 141. Study and report concerning the participation of Indian 
        tribes and members of Indian tribes in the National Flood 
        Insurance Program

    Requires the GAO to conduct a study and report to Congress 
on the factors contributing to the currently low rate of 
participation of Indian tribes and members of Indian tribes in 
the NFIP, and methods which can be used to encourage more 
participation by Indian tribes and their members.

Section 142. Technical corrections

    TITLE II--COMMISSION ON NATURAL CATASTROPHE RISK MANAGEMENT AND 
                               INSURANCE

Section 201. Short title

Section 202. Findings

Section 203. Establishment

    Establishes a nonpartisan Commission on Natural Catastrophe 
Risk Management and Insurance.

Section 204. Membership

    Requires that the Commission be composed of 16 
congressionally appointed members from a broad cross section of 
subject matter experts.

Section 205. Duties of the Commission

    Requires that the Commission examine the risks posed to the 
United States by natural catastrophes and means for mitigating 
those risks and for paying for losses caused by natural 
catastrophes.

Section 206. Report

    Requires that the Commission submit a report to 
Congressional Committees no later than 9 months after the date 
of the enactment of the title on its findings and 
recommendations, unless the time is extended.

Section 207. Powers of the Commission

    Authorizes certain powers with which the Commission will 
conduct its duties, including scheduling of meetings and 
obtaining data.

Section 208. Commission personnel matters

    Requires the Commission to operate under certain personnel 
rules.

Section 209. Termination

    Requires that the Commission terminate 90 days after the 
date on which it submits its report under Section 206.

Section 210. Authorization of appropriations

    Authorizes congressional appropriations for this 
Commission.

                          COST OF LEGISLATION

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

S. 1940--Flood Insurance Reform and Modernization Act of 2011

    Summary: The legislation would authorize the National Flood 
Insurance Program (NFIP) of the Federal Emergency Management 
Agency (FEMA) to enter into and renew flood insurance policies 
through fiscal year 2016. Under current law, the NFIP's 
authority will expire on November 18, 2011.
    The legislation would make a number of changes to the NFIP 
aimed at improving the financial status of the program. Under 
both current law and this legislation, the NFIP may borrow an 
additional $3 billion from the Treasury (the program's current 
debt stands at $17.8 billion). Assuming some probability of a 
rare catastrophic event in the future, CBO expects that this 
borrowing authority will be exhausted in 2014. The changes made 
by the bill would improve the financial condition of the 
program and reduce its need to borrow from the Treasury--a 
source of direct spending--by a total of $380 million between 
2012 and 2014, CBO estimates. However, because the program 
would continue to operate with insurance premiums that are not 
sufficient to cover all expected costs, CBO estimates that the 
NFIP would still need to borrow up to the statutory limit by 
2015 and that reduced borrowing from 2012 to 2014 would be 
offset by increased borrowing in 2015, resulting in no net 
effect on direct spending over the next 10 years.
    Over the 2012-2021 period, CBO estimates that the changes 
made by this legislation would increase net income to the NFIP 
by about $4.7 billion, improving the financial status of the 
program by that amount. However, under current law, the program 
will not have enough resources to pay all of the claims that 
will be due over that period. Therefore, we expect that 
additional income earned by the program would be used to 
fulfill obligations to flood insurance policyholders that would 
otherwise be delayed, resulting in no net effect on direct 
spending over the next 10 years.
    The bill also would increase civil penalties on mortgage 
lenders and government-sponsored enterprises that act in 
violation of current law. Additional amounts collected under 
the bill would be recorded as revenues and would total about $1 
million per year, CBO estimates, reducing budget deficits by 
$10 billion over the 2012-2021 period. Because enacting the 
legislation would affect direct spending and revenues, pay-as-
you-go procedures apply.
    CBO estimates that implementing the legislation would have 
a discretionary cost of almost $1.6 billion over the 2012-2016 
period, subject to appropriation of the necessary and specified 
amounts. Most of that spending would be for FEMA's flood 
mapping program. The bill also would authorize appropriations 
for: mitigation grants, establishment of a Commission on 
Natural Catastrophe Risk Management and Insurance, and numerous 
studies and assessments undertaken by FEMA and the Government 
Accountability Office (GAO).
    The bill would impose intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) by directing state 
regulatory agencies to require, and state lenders to provide, 
information on flood risk and insurance to more mortgage 
borrowers. CBO estimates that the cost of those 
intergovernmental mandates to state governments would be small 
and well below the annual threshold established in UMRA ($71 
million in 2011, adjusted annually for inflation).
    The legislation also would impose private-sector mandates, 
as defined in UMRA, on certain mortgage lenders. Based on 
information from industry sources and FEMA, CBO expects the 
direct costs to comply with those mandates would fall below the 
annual threshold for private-sector mandates established in 
UMRA ($142 million in 2011, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of this legislation is shown in the following 
table. The costs of this legislation fall within budget 
function 450 (community and regional development).
    Basis of estimate: For this estimate, CBO assumes that the 
legislation will be enacted near the beginning of fiscal year 
2012, that increases in insurance premiums for certain 
properties will be implemented by the spring of 2012, and that 
amounts specified and estimated to be necessary will be 
appropriated for each year.

Background

    Authority to Underwrite Coverage. The NFIP was established 
to encourage the purchase of flood insurance by property owners 
located in communities that adopt minimum guidelines for 
floodplain management and enforce building codes designed to 
mitigate flood damages. Flood insurance coverage is mandatory 
for properties located within an area designated as having at 
least a 1 percent chance of being flooded in any year (such an 
area is known as a Special Flood Hazard Area, or SFHA) and 
financed by a federally regulated lending institution, 
government-sponsored enterprise for housing, or federal lender. 
Property owners not receiving financing from those entities or 
located outside a SFHA may purchase flood insurance coverage 
from a private carrier or the NFIP at their discretion. Under 
current law, FEMA is authorized to underwrite the sale and 
renewal of flood insurance policies through November 18, 2011.

    TABLE 1.--ESTIMATED BUDGETARY IMPACT OF THE FLOOD INSURANCE REFORM AND MODERNIZATION ACT AS ORDERED REPORTED BY THE SENATE COMMITTEE ON BANKING,
                                                     HOUSING, AND URBAN AFFAIRS ON SEPTEMBER 8, 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        By fiscal year, in millions of dollars--
                                                              ------------------------------------------------------------------------------------------
                                                                                                                                           2012-   2012-
                                                                2012     2013     2014    2015   2016   2017   2018   2019   2020   2021   2016    2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority...................................     -25     -125     -230    380      0      0      0      0      0      0       0       0
Estimated Outlays............................................     -25     -125     -230    380      0      0      0      0      0      0       0       0

                                                                   CHANGES IN REVENUES

Increased Civil Penalties....................................       1        1        1      1      1      1      1      1      1      1       5      10

                                NET INCREASE OR DECREASE (-) IN THE DEFICITS FROM CHANGES IN DIRECT SPENDING AND REVENUES

Impact on Deficit............................................     -26     -126     -231    379     -1     -1     -1     -1     -1     -1      -5     -10

                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Flood Mapping Program:
    Authorization Level......................................     400      400      400    400    400      0      0      0      0      0   2,000   2,000
    Estimated Outlays........................................      80      240      320    400    400    320    160     80      0      0   1,440   2,000
Mitigation Assistance Grants:
    Authorization Level......................................      40       40       40     40     40     40     40     40     40     40     200     400
    Estimated Outlays........................................       2        8       20     34     38     40     40     40     40     40     102     302
Commission on Natural Catastrophe Risk Management and
 Insurance:
    Estimated Authorization Level............................       2        0        0      0      0      0      0      0      0      0       2       2
    Estimated Outlays........................................       2        0        0      0      0      0      0      0      0      0       2       2
Studies and Reports:
    Estimated Authorization Level............................       6        1        1      1      1      1      1      1      1      1      10      15
    Estimated Outlays........................................       6        1        1      1      1      1      1      1      1      1      10      15
    Total Changes:
        Estimated Authorization Level........................     448      441      441    441    441     41     41     41     41     41   2,212   2,417
        Estimated Outlays....................................      90      249      341    435    439    361    201    121     41     41   1,554   2,319
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Subsidized Premiums. Throughout the program's history, FEMA 
has charged premiums well below the amount necessary to offset 
the expected cost (also known as the full-risk or actuarial 
cost) for properties built before a community's Flood Insurance 
Rate Map (FIRM) was completed, or before 1975, whichever is 
later. Those properties, known as pre-FIRM properties, make up 
over 20 percent of all NFIP policies. FEMA estimates that pre-
FIRM policyholders pay average premiums that are about 40 
percent to 45 percent of the full-risk cost. Owners of some 
post-FIRM properties also pay discounted premiums under current 
law; however, they are few in number (less than 1 percent of 
all NFIP policies) relative to pre-FIRM properties. It is 
unclear whether other property owners receive premium subsidies 
not directly specified in law.\1\ For this estimate, CBO 
assumes that all policies not directly receiving subsidies will 
generate a sufficient amount of income to cover expected claims 
and related expenses over time.
---------------------------------------------------------------------------
    \1\See Congressional Budget Office, The National Flood Insurance 
Program: Factors Affecting Actuarial Soundness (November 2009).
---------------------------------------------------------------------------
    Ability to Pay Claims and Other Expenses. The National 
Flood Insurance Fund (NFIF) is the sole source of claims 
payments and other expenses associated with the NFIP. Under 
current law, the fund is credited with premium and fee receipts 
from policyholders, annual appropriations, interest earned on 
fund balances, and amounts borrowed from the Treasury. As of 
July 2011, the NFIP insured approximately 5.6 million policies 
with written annual premiums in place of $3.4 billion. For 
fiscal year 2011, the Congress provided the fund with $169 
million in appropriations, offset by an equivalent amount of 
additional fee collections from policyholders (see Public Law 
112-10). No interest income will be earned and no borrowing is 
expected to occur this year, CBO estimates.
    The majority of the NFIP's expenses consist of payments for 
insured claims resulting from outstanding coverage in place, 
which currently stands at about $1.2 trillion. FEMA estimates 
that claims payments and other delivery and underwriting 
expenses in 2011 will total about 80 percent of premium and fee 
income, based on the historical experience of policies and 
coverage amounts for properties currently insured by the 
program. Actual expenses for insured claims, however, have 
varied widely by year, ranging from less than 10 percent of 
premiums to almost 800 percent of premiums (based on calendar 
year totals).
    In most years, annual appropriations along with premium and 
fee income have been sufficient to cover the annual expenses of 
the NFIP. Prior to 2005, it was occasionally necessary for the 
program to borrow from the Treasury to meet expenses during 
greater-than-average loss years; however, that borrowing was 
relatively small (less than $1 billion) and was repaid with 
interest. Nonetheless, because of the large subsidy that exists 
for many policies, CBO estimates that the program will--on 
average--have greater annual expenses than revenue. This 
differential became apparent in the aftermath of Hurricanes 
Katrina, Rita, and Wilma in 2005. Because of the severe and 
widespread damages experienced during those storms, the program 
borrowed an unprecedented $16.7 billion in fiscal year 2006 to 
cover claims and interest expenses. NFIP's current debt to the 
Treasury stands at $17.8 billion. It is highly unlikely that 
the program will have sufficient income to repay those borrowed 
funds within the next 10 years.
    Assuming actuarial-level losses in 2012 and beyond, the 
NFIP will need to continue borrowing from the Treasury until 
its line of credit (currently set at $20.7 billion) is 
exhausted, which CBO estimates will occur in 2014 under current 
law.\2\ At this point, because expenses of the program may only 
be paid to the extent that resources in the NFIF are available, 
net spending would be zero for a given fiscal year. Payments 
for claims and other expenses would be delayed until sufficient 
resources became available to the NFIF from premium and fee 
collections. If the delay for such claims were to become 
untenable, policyholders might seek claims payments through a 
lawsuit. It is unclear how that matter would be resolved.
---------------------------------------------------------------------------
    \2\Actuarial-level losses take into account the full range of 
possible losses, including rare catastrophic events like Hurricane 
Katrina.
---------------------------------------------------------------------------

Direct spending and revenues

    CBO estimates that enacting this legislation would have no 
net impact on direct spending over the 2012-2016 or 2012-2021 
periods. We estimate that enacting the bill would increase 
revenues from the collection of civil penalties by about $1 
million per year over those periods.
    Section 104 of the legislation would provide FEMA with the 
authority to continue selling and renewing policies through 
fiscal year 2016. While this authority would otherwise expire 
in fiscal year 2012, the program is assumed to continue in the 
CBO baseline, consistent with rules governing baseline 
projections of mandatory programs. Thus, extending the NFIP 
under this legislation would have no effect on direct spending 
relative to the baseline.
    In addition to extending the NFIP, the legislation would 
make a number of changes to the program. The changes that would 
affect direct spending are:
         Premium increases for some pre-FIRM 
        policyholders;
          Temporarily discounted premiums for new and 
        existing policyholders that are required to pay a 
        higher premium under a revised FIRM; and
         Required capitalization of a reserve fund.
    The aggregate budgetary effects of those changes are shown 
in Table 2.
    The bill also would increase the minimum policy deductible 
and the average annual limit on premium growth. CBO estimates 
that those changes would not affect net direct spending.
    Overall, CBO estimates that changes made by this 
legislation would increase net income to the NFIP by $380 
million through 2014. CBO expects that the flood insurance 
program will not have exhausted its remaining borrowing 
authority during this period. Therefore, additional net income 
of the NFIP over that period would reduce expected borrowing 
from the Treasury--a source of direct spending. However, 
assuming annual program deficits, CBO estimates that any 
reduction in direct spending in those years would be offset by 
increased direct spending financed by additional borrowing in 
2015 (up to the limit on the NFIP's borrowing from the 
Treasury), resulting in no net effect on the federal budget 
over the next 10 years.\3\ After the borrowing authority of the 
NFIP has been exhausted, the changes made by the legislation 
would not affect net direct spending because CBO expects that 
any additional income earned by the program would be used to 
fulfill obligations (mostly claims payments) that would 
otherwise be delayed. However, enactment of the legislation 
would improve the financial status of the program by reducing 
this ``backlog'' of unfulfilled payments. Under current law, 
CBO estimates that delayed payments would total $3.6 billion by 
2016 and $12.6 billion by 2021. Under this legislation, we 
estimate that the ``backlog'' would total $2.3 billion in 2016 
and $8.0 billion in 2021, a reduction of about $1.3 billion and 
$4.7 billion, respectively.
---------------------------------------------------------------------------
    \3\CBO estimates that changes made by the legislation would reduce 
the aggregate subsidy built into premiums under current law by about 50 
percent by 2021; however, because the legislation would not completely 
eliminate subsidies for all policies, we estimate that the program 
would typically continue to operate with a deficit.

  TABLE 2.--CHANGE IN NET INCOME TO THE NFIP UNDER THE FLOOD INSURANCE
     REFORM AND MODERNIZATION ACT OF 2011 OVER SELECTED TIME PERIODS
------------------------------------------------------------------------
                                       By fiscal year, in millions of
                                                 dollars--
                                  --------------------------------------
                                    2012-2014    2012-2016    2012-2021
------------------------------------------------------------------------
Receipts:
    Premium Increases for Some             362        1,310        4,565
     Pre-FIRM Policies...........
    Temporarily Discounted                 -12          -20          -50
     Premiums....................
    Additional Premiums to                  50          154          775
     Capitalize Reserve Fund.....
                                  --------------------------------------
        Total Changes to Receipts          400        1,444        5,290
Expenses:
    Increased Payments to WYO              120          438        1,600
     Companies...................
    Reduced Claims Due to Dropped         -100         -274         -975
     Policies....................
                                  --------------------------------------
        Total Changes to Expenses           20          164          625

Change in Net Incomea............          380        1,280        4,665
Cumulative Net Effect on Direct           -380            0           0
 Spending........................
------------------------------------------------------------------------
aAfter the NFIP's borrowing authority has been exhausted, changes in net
  income are reflected as a corresponding increase or decrease in the
  delayed payments of claims and do not affect direct spending.
Note: FIRM = Flood Insurance Rate Map; WYO = Write-Your-Own.

    Premium Increases for Some Pre-FIRM Properties. Section 106 
would direct FEMA to increase flood insurance premiums for 
certain pre-FIRM properties, including nonresidential 
properties, nonprimary residences, and severe repetitive loss 
properties (defined as residences with at least four paid 
claims greater than $5,000 or with two paid claims that 
cumulatively exceed the market value of the house). Following 
the first rate adjustment that occurs at least three months 
after enactment (which CBO assumes would take place in the 
spring of 2012), policyholders of properties fitting the 
criteria of the bill would begin receiving premium increases of 
25 percent per year until the amount collected covers the full 
cost of the insurance.\4\ New policies that fit such criteria 
would pay the full-risk premium beginning three months after 
enactment.
---------------------------------------------------------------------------
    \4\The 25 percent would include some increase that FEMA would have 
applied to the policy under current law; thus, the increase in the per-
policy premium attributable to this legislation would be less than 25 
percent.
---------------------------------------------------------------------------
    Based on current policy information obtained from FEMA, CBO 
estimates that more than 440,000 existing policies would be 
subject to such premium increases under this provision. Those 
policyholders currently pay an average premium of about $1,174 
per year. Once subsidies are completely phased out, we expect 
that annual premiums for those policies would be, on average, 
about two and one-quarter times greater than the premium that 
would otherwise be charged under current law. While some 
policyholders would reduce or eliminate coverage as a result of 
those increases, CBO estimates that any resulting decrease in 
premium receipts would be more than offset by increases from 
properties that remain in the program.
    Additional premium receipts from pre-FIRM policyholders 
would total about $1.3 billion over the 2012-2016 period and 
about $4.6 billion over the next 10 years, CBO estimates. Under 
current agreements, Write-Your-Own (WYO) companies would 
receive a portion of that additional premium (about 30 
percent), as shown in Table 2, to offset an increase in 
expenses. Subsidized policyholders that drop out of the NFIP 
would save the program the cost of paying claims on those 
policies, resulting in a decrease in expenses. As a whole, CBO 
estimates that implementing the premium increases outlined in 
the legislation would increase net income to the NFIP by $1.2 
billion over the next five years and by about $3.9 billion over 
the 2012-2021 period.
    Temporarily Discounted Premiums. Section 108 would direct 
FEMA to phase in increases to the premiums it charges as a 
result of an updated FIRM. The phase-in would occur over a 
four-year period following the effective date of the updated 
map. In the first year, policyholders would pay 40 percent of 
the increase they would otherwise be charged. In each year 
thereafter, premiums would increase by an additional 20 percent 
until the full increase is implemented in the fourth year.
    For some properties newly mapped into a SFHA, FEMA would 
charge a higher premium under this section than would otherwise 
be charged under current law. This assumes that FEMA's 
Preferred Risk Policy (PRP) Extension program, currently 
available to properties newly mapped into a SFHA, is 
discontinued.\5\ For some policies, the aggregate discount 
under the PRP Extension program would be greater than the 
discount those policies would receive under this bill. For some 
other policies, including those not eligible for the PRP 
Extension program, the aggregate discount under the bill would 
be greater. On net, CBO estimates that implementing this 
section would decrease premiums received from properties newly 
mapped into a SFHA by $50 million over the next 10 years 
relative to current law. Net income to the NFIP would fall by a 
lesser amount ($35 million) because of reduced payments to WYO 
companies.
---------------------------------------------------------------------------
    \5\For properties newly mapped into a SFHA after October 1, 2008, 
that previously qualified for a PRP premium (that is, could not have 
two or more claims or disaster relief payments of $1,000 or more, or 
three losses or payments of any kind), FEMA currently offers a discount 
equal to the difference between the premium the policyholder would have 
paid and the PRP premium. That discount is available for two years. For 
properties mapped into a SFHA after October 1, 2008, and before January 
1, 2011, the discounted premium is available for the two policy years 
effective between January 1, 2011, and December 31, 2012.
---------------------------------------------------------------------------
    For properties already located within the 100-year 
floodplain, the net effect of this provision is less certain. 
Under current law, an existing policyholder determined to be at 
a higher risk under an updated map is ``grandfathered'' into 
the lower-risk class as long as the policy remains active. 
Those policies might see premium increases under this bill; 
however, those increases would be offset by new policies that 
receive a discount. CBO does not have sufficient data to 
estimate the number of policies that are currently 
``grandfathered'' into lower-risk classes nor the number of new 
policies already in an SFHA that would receive a discount under 
the bill.
    Require Capitalization of a Reserve Fund. Section 114 would 
require FEMA to establish a National Flood Insurance Reserve 
Fund with a balance equal to at least 1 percent of flood 
insurance coverage in place during the previous year. While the 
bill does not specify a date for full capitalization, the NFIP 
would be required to deposit an amount into the fund equal to 
at least 7.5 percent of the target ratio each year. Under the 
legislation, FEMA would have the authority to increase premiums 
each year (up to the 15 percent maximum allowed by the bill) as 
necessary to make the required deposit; however, a smaller 
deposit would be allowed in years when excess premium receipts 
were less than sufficient (due to higher-than-expected 
expenses).
    Under current law, FEMA charges flood insurance premiums 
that are greater than the historical average cost of such 
coverage.\6\ The main purpose of such charges is to build 
surpluses (or pay down debt) for future years when costs may be 
greater than historical averages. Because the reserve fund 
would be used for a similar purpose, CBO assumes that FEMA 
would adjust premiums so that aggregate receipts would exceed 
historical average costs by an amount roughly equal to the 
required contribution to the fund under the bill. Thus, during 
a year when costs equal historical averages, the program would 
collect exactly enough to make the full required deposit. Using 
this approach and assuming historical premium growth and 
insurance coverage growth of about 5 percent, CBO estimates 
that the aggregate premiums that would be collected under 
current law would not be sufficient during a historical average 
year to make the capital deposit required by the bill. 
Therefore, CBO expects that FEMA would increase premiums as a 
result of this provision. We estimate that those additional 
premiums would increase the net income of the NFIP by about 
$735 million over the next 10 years after accounting for 
additional payments made to WYO companies.
---------------------------------------------------------------------------
    \6\The historical average cost for a flood insurance policy is not 
necessarily equal to the full-risk, or actuarial, cost. Historical 
average costs reflect actual losses observed over some period of time 
(in this case, between 1978 and 2008) and does not include the full 
range of possible losses that have not yet occurred. Because of this, 
actuarial loss estimates are much greater than historical costs for 
some properties.
---------------------------------------------------------------------------
    Increase in the Minimum Policy Deductible. Section 112 
would increase the minimum deductible for some flood insurance 
policies. For the current policy year (which began in October 
2010), the standard deductible is $2,000 for most subsidized 
properties and $1,000 for nonsubsidized properties; however, 
pre-FIRM policyholders may reduce that deductible by $1,000 in 
exchange for a higher premium.
    CBO estimates that about 255,000 pre-FIRM policies 
currently carry deductibles below levels required by the bill 
and thus would be affected by this provision. We do not have 
enough information to determine the number of post-FIRM 
policies that would be affected. By increasing the insurance 
deductible on some flood insurance policies, this legislation 
would reduce average insured claims. However, because the bill 
would not change the amount of subsidized coverage, we expect 
that premium receipts would decline by an equivalent amount 
over time, resulting in no net impact to the NFIP or the 
federal budget.
    Increase in Average Annual Limit on Premium Growth. Section 
106 would authorize the NFIP to increase premiums within a 
specific risk category by an average of up to 15 percent per 
year. Under current law, the limit is 10 percent. Based on 
historical experience, CBO assumes that raising this limit 
would not result in annual premium increases of more than 10 
percent for most subsidized policies (with the exception of 
policies that would receive larger premium increases because of 
other sections of this legislation). (Under both current law 
and this legislation, actuarially rated policies are assumed to 
receive premium increases necessary to cover the full cost of 
the coverage but not additional amounts to subsidize those 
policyholders that pay insurance premiums that are below 
actuarial rates.) Therefore, implementing this provision would 
have no net effect on the NFIP or the federal budget.
    Civil Penalties. Section 110 would increase the civil 
penalty from $350 to $2,000 for lenders and government-
sponsored enterprises that violate current law and would 
eliminate the limit on the aggregate amount of penalties that 
could be assessed on any single institution in one year. CBO 
estimates that the increased revenues from penalty collections 
would amount to about $1 million a year.
    Study on Affordability. Section 140 would authorize FEMA to 
use up to $750,000 from the NFIP to conduct a study on the 
participation and affordability of flood insurance for certain 
eligible policyholders. Spending for the study would not be 
subject to appropriation. CBO estimates that enacting this 
provision would increase costs to the NFIP, and thus reduce net 
income to the program, by $750,000 in 2012, requiring 
additional borrowing in that year. The additional borrowing in 
2012 would be offset by reduced borrowing in 2015 (when CBO 
expects that the NFIP's ability to borrow would be exhausted), 
resulting in no net impact on the federal deficit over the next 
10 years.

Changes subject to appropriation

    CBO estimates that the discretionary costs of implementing 
this bill would be about $1.6 billion over the 2012-2016 
period, subject to appropriation of the necessary amounts.
    Flood Mapping Program. Section 118 would authorize the 
appropriation of $400 million for each of fiscal years 2012 
through 2016 to update and maintain flood maps. In 2011, the 
Congress provided $182 million for this activity (see Public 
Law 112-10).\7\ Under the bill, FlRMs would be regularly 
updated to include all populated and potentially populated 
areas located in the 100- and 500-year floodplains, areas of 
residual risk, and the level of protection provided by flood 
control structures. Based on historical spending patterns, CBO 
estimates that implementing this provision would cost about 
$1.4 billion over the 2012-2016 period and an additional $560 
million in later years.
---------------------------------------------------------------------------
    \7\That law also made available up to $147 million for floodplain 
management and mapping; however those amounts were to offset through 
additional collections from policyholders through the Federal Policy 
Fee.
---------------------------------------------------------------------------
    Mitigation Assistance Grants. Section 129 would consolidate 
several existing mitigation programs of the NFIP and would 
increase authorized spending for those programs by a total of 
$40 million a year. Under current law, FEMA operates three 
separate programs that provide grants to state and local 
governments to purchase, relocate, or elevate NFIP-insured 
properties--the Flood Mitigation Assistance (FMA) program, the 
Repetitive Flood Claims (RFC) program, and the Severe 
Repetitive Loss (SRL) program. Current law authorizes the 
appropriation of $40 million and $10 million per year, 
respectively, for the FMA and RFC programs. The SRL program is 
not authorized in fiscal year 2012 or beyond under current law.
    The legislation would consolidate the three existing 
mitigation programs of the NFIP into a Mitigation Assistance 
Grant program and would authorize the appropriation of $90 
million per year--an increase of $40 million over current law--
for those activities. The bill also would adjust the federal 
cost share and allow for grants to be made directly to property 
owners in certain cases. Based on historical spending for flood 
mitigation activities, CBO estimates that implementing this 
provision would cost $102 million over the 2012-2016 period, 
assuming appropriation of the specified amounts.
    Commission on Natural Catastrophe Risk Management and 
Insurance. Title II of the legislation would establish a 16-
member Commission on Natural Catastrophe Risk Management and 
Insurance. The commission would report to the Congress on 
various aspects of public and private insurance markets and 
efforts to mitigate losses in future disasters within one year 
after enactment. The commission would terminate 90 days after 
issuing this report. Based on historical costs for current and 
previous commissions of similar size and scope, CBO estimates 
that implementing this provision would cost $2 million in 2012, 
assuming appropriation of the necessary amounts.
    Studies and Reports. The legislation would direct FEMA and 
GAO to conduct studies and issue reports on a number of topics. 
Some of those studies, including research on expanding the 
program to include coverage for business interruption and 
living expenses, the purchase and affordability of reinsurance, 
inclusion of building codes, and reimbursement expenses of WYO 
companies, would conclude after a set period of time. Other 
reports on interagency coordination, program activities, and 
claim-paying ability would occur annually. Based on the cost of 
similar studies, CBO estimates that producing the reports 
required under the legislation would cost about $10 million 
over the next five years, assuming the availability of 
appropriated funds.
    Other Discretionary Changes. The legislation would make a 
number of other changes that CBO estimates would not affect net 
discretionary spending for the NFIP. Those changes include 
establishing a Technical Mapping Advisory Council (section 117) 
and a Scientific Resolution Panel (section 120). The Technical 
Mapping Advisory Council would be an 18-member council that 
would review and recommend new and existing mapping standards 
for FIRMs. The five-member Scientific Resolution Panel would 
assist in settling disputes between FEMA and communities 
related to revisions to a flood map.
    Under current law, spending for floodplain management 
activities (which CBO assumes would include operations of the 
Technical Mapping Advisory Council and the Scientific 
Resolution Panel) are subject to approval in appropriation 
acts. FEMA is authorized to offset those costs through the 
collection of a fee (known as the Federal Policy Fee) from 
policyholders. As such, CBO estimates that implementing this 
section would have no net effect on discretionary spending over 
the next five years, assuming appropriations of the necessary 
amounts and corresponding increases in fee collections.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

    CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR THE FLOOD INSURANCE REFORM AND MODERNIZATION ACT OF 2011 AS ORDERED REPORTED BY THE SENATE COMMITTEE ON
                                                BANKING, HOUSING, AND URBAN AFFAIRS ON SEPTEMBER 8, 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By fiscal year, in millions of dollars--
                                                        ------------------------------------------------------------------------------------------------
                                                          2012     2013     2014    2015   2016   2017   2018   2019   2020   2021  2012-2016  1012-2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       NET INCREASE OR DECREASE (-) IN THE DEFICIT

Statutory Pay-As-You-Go Impact.........................     -26     -126     -231    379     -1     -1     -1     -1     -1     -5        -5        -10
Memorandum:
    Changes in Outlays.................................     -25     -125     -230    380      0      0      0      0      0      0         0          0
    Changes in Revenues................................      -1       -1       -1     -1     -1     -1     -1     -1     -1     -1        -5        -10
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
The bill would impose intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act. It would require state 
agencies that regulate mortgage lenders to require that those 
lenders provide borrowers with information about flood 
insurance if the property covered by the mortgage is located in 
the 500-year floodplain. It also would require state agencies 
that directly offer mortgages to provide such information and 
to notify borrowers about how to continue flood insurance 
coverage once the mortgage is repaid in full. Based on 
conversations with industry representatives, CBO estimates that 
the cost to state regulatory agencies would be minimal, and the 
number of loans for which state agencies would be required to 
provide flood insurance information would be small. The total 
cost for state agencies to comply with those requirements would 
be well below the annual threshold established in UMRA for 
intergovernmental mandates ($71 million in 2011, adjusted 
annually for inflation).
    Estimated impact on the private sector: The bill would 
require mortgage lenders when making, increasing, extending, or 
renewing any loan secured by property located in an area within 
the 500-year floodplain to notify the purchaser or lessee and 
the servicer of the loan that such property is located in the 
500-year floodplain. The bill also would require certain 
mortgage lenders to notify policyholders that insurance 
coverage may cease with the final mortgage payment and to 
provide direction as to how the homeowner may continue flood 
insurance coverage after the life of the loan. In addition, 
certain mortgage lenders would be required to deposit premiums 
and fees for flood insurance in an escrow account on behalf of 
the borrower. Finally, the bill would require lenders to 
provide all purchasers a disclosure of the availability of 
flood insurance under the Real Estate Settlements Procedures 
Act. According to industry representatives, the cost for 
mortgage lenders to provide the additional notices and 
information and to escrow flood insurance payments would be 
small. Therefore, CBO estimates that the aggregate direct cost 
of complying with the mandates would fall below the annual 
threshold for private-sector mandates established in UMRA ($142 
million in 2011, adjusted annually for inflation).
    Previous CBO estimate: On June 8, 2011, CBO transmitted a 
cost estimate for H.R. 1309, the Flood Insurance Reform Act of 
2011, as ordered reported by the House Committee on Financial 
Services on May 13, 2011. CBO estimates that both this 
legislation and H.R. 1309 would have no net impact on direct 
spending over the 2012-2016 and the 2012-2021 periods. This 
legislation would increase federal revenues by about $1 million 
a year more than H.R. 1309 because of additional civil 
penalties for lenders and other entities included in the bill.
    CBO estimates that enacting this legislation would increase 
net income to the NFIP by about $500 million more than H.R. 
1309 over the next 10 years. This difference mainly results 
from the faster phase-in of actuarial rates for certain pre-
FIRM properties and the expected collection of additional 
premiums to capitalize the reserve fund under this bill. CBO 
expects that fewer pre-FIRM policies would be subject to 
premium increases under this legislation, relative to H.R. 
1309; that would only partially offset the increase in net 
income to the NFIP attributable to other effects.
    CBO estimates that the discretionary cost for this 
legislation would be $1.2 billion higher over the 2012-2016 
period than that for H.R. 1309. About $1.1 billion of that 
difference would be for FEMA to revise and update flood maps. 
The majority of the remaining difference is attributable to 
additional funding for mitigation grants under this bill. (H.R. 
1309, as passed by the House of Representatives on July 12, 
2011, includes a similar increase in funding for mitigation 
grants, but that provision was not a part of the version 
estimated by CBO.)
    H.R. 1309 also contains a mandate on private mortgage 
lenders that would require them to accept flood insurance from 
a private company if the policy fulfills all federal 
requirements for flood insurance. The bill would also require 
such mortgage lenders to include specific information about the 
availability of flood insurance in each good-faith estimate. 
Those mandates are not contained in the Senate legislation; CBO 
estimated that the cost of complying with those mandates would 
be small and fall below the annual threshold.
    Estimate prepared by: Federal costs: Daniel Hoople; Impact 
on state, local, and tribal governments: Melissa Merrell; 
Impact on the private sector: Paige Piper/Bach.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                      REGULATORY IMPACT STATEMENT

    In accordance with paragraph 11(b), rule XXVI, of the 
Standing Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact of the bill.
    This legislation seeks to address several deficiencies 
within the structure of the NFIP. Section 109 of this 
legislation requires states, as a requirement of participation 
in the program, to require state-chartered financial 
institutions to maintain flood insurance on all current and 
future mortgages starting December 31, 2011. This section will 
enhance safety and soundness of state-chartered financial 
institutions by ensuring that assets used to secure loan 
payments are sufficiently covered in the event that assets are 
damaged or destroyed by a flooding event. Section 110 updates 
the maximum allowable civil money penalties per violation that 
regulators may impose against financial institutions for 
failing to comply with the provisions of this Act. Section 110 
also eliminates the $100,000 annual cap that regulators may 
impose on financial institutions to ensure compliance with this 
Act. Section 111 of this Act requires that all flood insurance 
payments are escrowed, which insures that flood insurance 
payments remain current and that assets used to secure loan 
payments are protected.
    This legislation also requires the NFIP to keep and 
maintain a reserve fund of one percent of total risk exposure. 
This provision ensures that policyholders' claims will be paid 
without the assistance of the U.S. Department of Treasury and 
is also consistent with the goal of working to eliminate some 
portion of the annual subsidy for the program.
    It is expected that the reported bill will have no impact 
on the personal privacy of the current or prospective flood 
insurance policyholders. This bill is expected to strengthen 
the financial status of the NFIP by making rates more 
actuarially sound and expanding the population purchasing flood 
insurance. This bill also provides for more equitable treatment 
between policyholders as well as protecting the U.S. taxpayer 
from further loss.

                 CHANGES IN EXISTING LAW (CORDON RULE)

    On September 8, 2011, the Committee unanimously approved a 
motion by Senator Johnson to waive the Cordon rule. Thus, in 
the opinion of the Committee, it is necessary to dispense with 
section 12 of rule XXVI of the Standing Rules of the Senate in 
order to expedite the business of the Senate.

                                  
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