19–010 

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 


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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 (preVerDate Mar 15 2010 00:38 Dec 08, 2011 Jkt 019010 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\SR098.XXX SR098

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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 


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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 stateregulated 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 


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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. 


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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 


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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 federallyregulated 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. 


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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. 


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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. 


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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. 


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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. 


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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. 


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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 loVerDate Mar 15 2010 00:38 Dec 08, 2011 Jkt 019010 PO 00000 Frm 00013 Fmt 6659 Sfmt 6602 E:\HR\OC\SR098.XXX SR098

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cated 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 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012- 

2016 

2012- 

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 preFIRM properties. It is unclear whether other property owners reVerDate Mar 15 2010 00:38 Dec 08, 2011 Jkt 019010 PO 00000 Frm 00014 Fmt 6659 Sfmt 6602 E:\HR\OC\SR098.XXX SR098

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1See Congressional Budget Office, The National Flood Insurance Program: Factors Affecting 

Actuarial Soundness (November 2009). 2 Actuarial-level losses take into account the full range of possible losses, including rare catastrophic events like Hurricane Katrina. 

ceive 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. 

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-thanaverage 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 


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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. 

to become untenable, policyholders might seek claims payments 

through a lawsuit. It is unclear how that matter would be resolved. 

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 bilVerDate Mar 15 2010 00:38 Dec 08, 2011 Jkt 019010 PO 00000 Frm 00016 Fmt 6659 Sfmt 6602 E:\HR\OC\SR098.XXX SR098

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4The 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. 

lion in 2016 and $8.0 billion in 2021, a reduction of about $1.3 billion and $4.7 billion, respectively. 

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 Pre-FIRM Policies ........................................... 362 1,310 4,565 

Temporarily Discounted Premiums ................................................................ ¥12 ¥20 ¥50 

Additional Premiums to Capitalize Reserve Fund ......................................... 50 154 775 

Total Changes to Receipts ................................................................... 400 1,444 5,290 

Expenses: 

Increased Payments to WYO Companies ....................................................... 120 438 1,600 

Reduced Claims Due to Dropped Policies ..................................................... ¥100 ¥274 ¥975 

Total Changes to Expenses .................................................................. 20 164 625 

Change in Net Income a ......................................................................................... 380 1,280 4,665 

Cumulative Net Effect on Direct Spending ............................................................ ¥380 0 0 

a After 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. 

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 


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5For 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. 

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. 

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 reVerDate Mar 15 2010 00:38 Dec 08, 2011 Jkt 019010 PO 00000 Frm 00018 Fmt 6659 Sfmt 6602 E:\HR\OC\SR098.XXX SR098

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6The historical average cost for a flood insurance policy is not necessarily equal to the fullrisk, 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. 

quired 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. 

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 


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7That 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. 

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 appro- priation 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. 

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 


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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-asyou-go procedures are shown in the following table. 


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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 


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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 inVerDate Mar 15 2010 00:38 Dec 08, 2011 Jkt 019010 PO 00000 Frm 00023 Fmt 6659 Sfmt 6602 E:\HR\OC\SR098.XXX SR098

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sures 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. 

Æ 


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