On June 29, 2012, the U.S. Congress passed a sweeping bill that includes a five-year extension of the National Flood Insurance Program (NFIP).

Under the bill, which President Obama is expected to sign into law, the NFIP is reauthorized until September 30, 2017.

Perhaps most importantly, the bill includes a series of reforms designed to improve the program’s fiscal stability. It is intended to make premiums for flood insurance better reflect the risk of a loss, update and improve flood maps and public notification, and establish steps to mitigate against repetitive losses.

Key highlights of the legislation include:

• Effective July 1, rates for second homes, properties with repetitive flood claims, and commercial properties will go up 20 percent over the next five years.
• Premium rates can increase a maximum of 20 percent annually (up from 10 percent annually).
• Lenders are now required to accept non-NFIP backed flood insurance coverage if that coverage meets all the same requirements as NFIP-backed flood insurance.
• Multifamily residential building owners (with 5 or more units) may now purchase flood insurance up to the commercial coverage limits, which is currently $500,000 per structure.

Insurance Industry Applauds Changes

News of the extension was well received in the insurance industry, which has long lobbied for changes to the NFIP.

"After years of uncertainty, today's passage helps bring the National Flood Insurance Program closer than ever to financial stability," said Charles M. Chamness, President and CEO of the National Association of Mutual Insurance Companies (NAMIC) in a news release.

"These common sense, bipartisan reforms benefit home buyers and sellers, policyholders, communities and taxpayers." Added Tom Santos, vice president for federal affairs at the American Insurance Association (AIA), “[The five-year extension will] provide certainty in the flood insurance program thereby increasing consumer and business confidence in the NFIP.”

About the NFIP

The NFIP, created by Congress in 1968, enables property owners in participating communities to purchase insurance protection from the U.S. government against losses from flooding. The program was largely self-sufficient until the devastating losses from Hurricanes Katrina and Rita; it is now in debt more than $18 billion to the U.S. Treasury.

Since the program has endured numerous short terms extensions—and a number of brief hiatuses—as lawmakers disagreed on reformations to the program’s structure.