Letter to the Hon. Nancy Pelosi, Speaker of the U.S. House of Representatives, the Hon. Kevin McCarthy, Minority Leader of the U.S. House of Representatives, the Hon. Steny Hoyer, Majority Leader of the U.S. House of Representatives, and the Hon. Steve Scalise, Minority Whip of the U.S. House of Representatives - Pascrell, Graves, Crist, Rouzer, Mucarsel-Powell, Rooney Demand Changes to National Flood Insurance Program Reauthorization

Letter

We write because our constituents and all Americans deserve a long-term National Flood Insurance Program (NFIP) reauthorization that enhances the affordability, efficiency, fairness, accountability, and sustainability of the program. These reforms should be based on the realities experienced in the aftermath of major flooding and storms our constituents have experienced. Since the last long-term reauthorization, the NFIP has been subjected to 13 short-term extensions. This uncertainty has created significant anxiety for homeowners, renters, and small business owners in our states. We appreciate Chairwoman Waters and Ranking Member McHenry's commitment to a long-term reauthorization and the extensive work they put into bipartisan legislation that reforms the program.

However, we are concerned this proposal does not address premium increases our constituents expect under FEMA's new methodology for determining risk that is poised to become effective in October 2020. This new methodology, known as Risk Rating 2.0, will no longer use flood maps and zones to determine a homeowner's premium rate, but rather a series of models that will "fundamentally change" a property's individual flood risk assessment and therefor their insurance price.[1] While FEMA intends Risk Rating 2.0 to provide more accurate and transparent flood insurance pricing, this untested proposal could lead to increased premiums, forcing homeowners to drop coverage, or even worse, lose their home.

In addition, there are many questions surrounding how FEMA will implement this program, including but not limited to the types and sources of any data that will be used to calculate risk, how risk would be factored in areas behind levee systems, and impacts to grandfathered policies. Congress has not been fully briefed on all aspects of this new proposal that will inject an enormous degree of uncertainty for the over five million NFIP policy holders. Given these uncertainties and lingering questions, the current premium caps will be insufficient to ensuring the NFIP is affordable for all our constituents under Risk Rating 2.0.

As you know, the maximum annual increase for primary residences is 18 percent, with a 15 percent maximum for a rate class. According to FEMA, renewal premiums will increase an average of 11.3 percent, Severe Repetitive Loss Premiums are increasing to 10 percent, and annual premium increases of 14.9 percent for preferred risk policies and 14.8 percent for newly mapped procedure policies are on the horizon.[2] While we recognize it is the only data available, we caution against using historical average rate increases as a barometer for expected rate increases under Risk Rating 2.0 because risk determination is not currently individualized. Additionally, the 18 percent premium cap only includes building and contents coverage, Increased Cost of Compliance (ICC) coverage, and the reserve fund assessment. Not included is the Federal Policy Fee, the HFIAA surcharge, a 5% premium on severe repetitive loss (SRL) properties, and a possible probation surcharge.

Since FEMA is designing a system to reflect individual property's unique flood risk, we remain concerned that the 15 percent cap on rate classes and grandfathered properties protections are irrelevant. Some policyholders are eligible for a newly mapped subsidy if their property is newly mapped into a Special Flood Hazard Area (SFHA). This grandfathering policy is in place to protect policyholders from unexpected rate increases due to risk adjustments reflected in zone changes under new Flood Insurance Rate Maps. But the individual risk rating system proposed in Risk Rating 2.0 threatens this structure.

We know the negative consequences of hiking premiums after the Biggert-Waters Act of 2012 caused costs to skyrocket, hurting policyholders and a chill was sent through the real-estate market. With Risk Rating 2.0 on the horizon, we encourage you to do everything possible to prevent premium spikes for our constituents. Our constituents cannot suffer from a double-digit rate increase in addition to the fees and surcharges FEMA could impose on policy holders under Risk Rating 2.0. They also cannot bear a backdoor attempt to remove grandfathered policies. We urge you to work with us to ensure the Waters-McHenry package reflects our priorities for premiums caps and delays the impacts of Risk Rating 2.0 before it comes to the House floor for a vote.

We look forward to working with you to address this affordability issue in a long-term NFIP reauthorization.