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115th Congress   }                                     {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session     }                                     {       115-221

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

 
TO REQUIRE THE USE OF REPLACEMENT COST VALUE IN DETERMINING THE PREMIUM 
 RATES FOR FLOOD INSURANCE COVERAGE UNDER THE NATIONAL FLOOD INSURANCE 
                      ACT, AND FOR OTHER PURPOSES

                                _______
                                

 July 14, 2017.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 2565]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2565) to require the use of replacement cost 
value in determining the premium rates for flood insurance 
coverage under the National Flood Insurance Act, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. USE OF REPLACEMENT COST IN DETERMINING PREMIUM RATES.

  (a) Study of Risk Rating Redesign Flood Insurance Premium Rating 
Options.--
          (1) Study.--The Administrator of the Federal Emergency 
        Management Agency shall conduct a study to--
                  (A) evaluate insurance industry best practices for 
                risk rating and classification, including practices 
                related to replacement cost value in premium rate 
                estimations;
                  (B) assess options, methods, and strategies for 
                including replacement cost value in the Administrator's 
                estimates under section 1307(a)(1) of the National 
                Flood Insurance Act of 1968 (42 U.S.C. 4014(a)(1));
                  (C) provide recommendations for including replacement 
                cost value in the estimate of the risk premium rates 
                for flood insurance under such section 1307(a)(1);
                  (D) identify an appropriate methodology to 
                incorporate replacement cost value into the 
                Administrator's estimates under such section 
                1307(a)(1);
                  (E) develop a feasible implementation plan and 
                projected timeline for including replacement cost value 
                in the estimates of risk premium rates for flood 
                insurance made available under the National Flood 
                Insurance Program.
          (2) Report.--
                  (A) Requirement.--Not later than the expiration of 
                the 12-month period beginning on the date of the 
                enactment of this Act, the Administrator shall submit 
                to the Committee on Financial Services of the House of 
                Representatives and the Committee on Banking, Housing, 
                and Urban Affairs of the Senate a report that contains 
                the results and conclusions of the study required under 
                paragraph (1).
                  (B) Contents.--The report submitted under 
                subparagraph (A) shall include--
                          (i) an analysis of the recommendations 
                        resulting from the study under paragraph (1) 
                        and any potential impacts on the National Flood 
                        Insurance Program, including cost 
                        considerations;
                          (ii) a description of any actions taken by 
                        the Administrator to implement the study 
                        recommendations; and
                          (iii) a description of any study 
                        recommendations that have been deferred or not 
                        acted upon, together with a statement 
                        explaining the reasons for such deferral or 
                        inaction.
  (b) Use of Replacement Cost Value in Premium Rates; Implementation.--
          (1) Estimated rates.--Paragraph (1) of section 1307(a) of the 
        National Flood Insurance Act of 1968 (42 U.S.C. 4014(a)(1)) is 
        amended, in the matter preceding subparagraph (A), by inserting 
        after ``flood insurance'' the following: ``, which shall 
        incorporate replacement cost value, and''.
          (2) Chargeable rates.--Subsection (b) of section 1308 of the 
        National Flood Insurance Act of 1968 (42 U.S.C. 4015(b)) is 
        amended, in the matter preceding paragraph (1), by inserting 
        after ``Such rates'' the following: ``shall incorporate 
        replacement cost value and''.
          (3) Effective date.--The amendments under paragraphs (1) and 
        (2) of this subsection shall be made upon the expiration of the 
        12-month period beginning on the date of the enactment of this 
        Act.
          (4) Applicability and phase-in.--The Administrator of the 
        Federal Emergency Management Agency shall apply the amendments 
        under paragraphs (1) and (2) to flood insurance coverage made 
        available under the National Flood Insurance Act of 1968 for 
        properties located in various geographic regions in the United 
        States such that--
                  (A) over the period beginning upon the expiration of 
                the period referred to in paragraph (3) of this 
                subsection and ending on December 31, 2020, the 
                requirement under such amendments shall be gradually 
                phased in geographically throughout the United States 
                as sufficient information for such implementation 
                becomes available; and
                  (B) after the expiration of such period referred to 
                in subparagraph (A), such amendments shall apply to all 
                flood insurance coverage made available under the 
                National Flood Insurance Act of 1968.

                          Purpose and Summary

    Introduced by Representative Blaine Luetkemeyer on May 19, 
2017, H.R. 2565 would require the use of replacement cost value 
in determining the premium rates for flood insurance coverage 
under the National Flood Insurance Act, and for other purposes, 
would require the Federal Emergency Management Agency (FEMA) to 
conduct a study on the feasibility of incorporating the actual 
replacement cost value for each National Flood Insurance 
Program covered property. Additionally, H.R. 2565 amends the 
National Flood Insurance Act of 1968 to require FEMA to use 
actual replacement cost values as part of the determination of 
chargeable risk premiums.

                  Background and Need for Legislation

    Floods are among the most frequently occurring and costly 
natural disasters. Most declarations of federal disasters by 
the Federal Emergency Management Agency (FEMA) are related to 
flooding. Yet despite the frequency and severity of losses that 
result from flooding, the private insurance market generally 
did not provide insurance for flooding; when it did, insurance 
for flood-related damage can be expensive because the 
properties most at-risk tend to be highly concentrated 
geographically and the potential risk of economic losses is 
extremely high.
    To supplement the availability of flood insurance in the 
private market, Congress, in 1968, created the National Flood 
Insurance Program (NFIP), which is administered by FEMA and 
provides flood insurance to approximately 5.1 million 
policyholders across the country. In exchange for premiums paid 
by policyholders, NFIP makes federally backed flood insurance 
available to homeowners and other property owners (for example, 
businesses, churches, and farmers) in these communities.
    Homeowners with mortgages held by federally regulated 
lenders on property in participating communities identified by 
FEMA to be in Special Flood Hazard Areas are required to 
purchase flood insurance (mandatory purchase requirement). NFIP 
coverage limits vary by program (regular or emergency) and 
property type (for example, residential or nonresidential). In 
NFIP's regular program, the maximum coverage limits for 
residential policyholders are $250,000 for buildings and 
$100,000 for contents. For commercial policyholders (that is, 
those with policies for nonresidential properties), the maximum 
coverage limit is $500,000 per building and $500,000 for 
contents owned by the building owner. There is additional 
coverage for contents owned by the tenants.
    Residents and business owners in over 22,000 participating 
communities across the United States and its territories are 
able to buy NFIP flood insurance policies through insurance 
agents and companies that participate as third-party 
administrators in the ``Write Your Own'' (WYO) program. The WYO 
program allows private insurance carriers to issue and service 
government underwritten and taxpayer backed NFIP policies with 
no private financial liability from the insurer. Insurance 
companies that participate in the WYO program receive an 
expense allowance for policies they write and the claims they 
process. In addition, their agents earn a commission for the 
policies they sell. The federal government, however, retains 
responsibility for managing the risk and paying claims, as well 
as covering any litigation costs should a WYO insurer be sued 
in court.
    Property owners can purchase flood insurance through the 
NFIP only if their communities participate in the NFIP. To 
participate in the NFIP, a community must agree to abide by 
certain statutory provisions intended to mitigate the risk of 
flooding, such as building codes that require new structures 
built in floodplains (high-risk areas) to be protected against 
flooding or to be elevated above the 100-year floodplain.
    As of June 5, 2017, the NFIP has an outstanding debt of 
$24.6 billion borrowed from taxpayers, with roughly $1.1 
billion available cash-on-hand and $5.825 billion remaining of 
its total temporary $30.425 billion Treasury borrowing 
authority. The NFIP's debt results primarily from its borrowing 
to pay claims relating to the Gulf Coast hurricanes in 2005 and 
Superstorm Sandy in October 2012. This borrowing stems from a 
structural imbalance in how the NFIP measures and prices for 
risk, resulting in only 46 percent of premium dollars collected 
in 2016 being available for the payments of claims. With such a 
low portion of premiums available to pay claims, the pressure 
on the NFIP to borrow from taxpayers increases. The NFIP's 
structural budget crisis has required periodic legislation to 
increase its borrowing authority, the most recent example of 
which occurred in January 2013 when Congress increased the 
NFIP's borrowing authority by $9.7 billion--from $20.725 
billion to its current $30.425 billion level.
    H.R. 2565 would require FEMA to conduct a study to evaluate 
insurance industry best practices for risk rating and 
classification, including practices related to replacement cost 
value in premium rate estimation. Upon submission of the study 
to Congress, the bill requires FEMA to incorporate up-to-date 
replacement cost values, by structure, when calculating annual 
chargeable premium rates, as opposed to the current practice 
that relied upon a national average, over a 1-3 year period.
    In FEMA's documents that outline the methods used to 
develop flood insurance premiums, the agency states that it 
does not consider actual replacement costs when it determines 
NFIP premiums. Instead, the NFIP uses fixed national averages 
for replacement costs when it determines customer premiums. By 
using fixed replacement values based on historical averages, 
the NFIP's current premium construction process guarantees that 
the lower-income policyholders will subsidize wealthier 
homeowners, because policyholders below the average would pay 
up to that national average and policyholders above the average 
(higher income policyholders) would pay down to that national 
average.
    H.R. 2565 fixes this inequity and provides relief to lower-
income policyholders by requiring the NFIP to incorporate up-
to-date replacement cost values, by structure, when calculating 
annual chargeable premium rates, as opposed to the current 
practice that relies upon a national average.

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Housing & Insurance held two hearings examining matters 
relating to H.R. 2565 on March 9, 2017 and March 16, 2017. The 
Committee on Financial Services held a hearing examining 
matters relating to H.R. 2565 on June 7, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
June 15, 2017 to consider H.R. 2565. The Committee ordered H.R. 
2565 to be reported favorably to the House, as amended, by a 
recorded vote of 34 ayes and 25 nays (Recorded vote no. FC-66), 
a quorum being present. Before the motion to report was 
offered, the Committee adopted an amendment offered by Mr. 
Luetkemeyer, by voice vote, a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill, as amended, favorably to the House. The motion 
was agreed to by a recorded vote of 34 ayes and 25 nays 
(Recorded vote no. FC-66), a quorum being present.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 2565 
will protect taxpayers and policyholders by incorporating up-
to-date replacement cost values, by structure, when calculating 
annual chargeable premium rates.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 14, 2017.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2565, a bill to 
require the use of replacement cost value in determining the 
premium rates for flood insurance coverage under the National 
Flood Insurance Act, and for other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Robert Reese.
            Sincerely,
                                             Mark P. Hadley
                                                  (For Keith Hall).
    Enclosure.

H.R. 2565--A bill to require the use of replacement cost value in 
        determining the premium rates for flood insurance coverage 
        under the National Flood Insurance Act, and for other purposes

    Summary: H.R. 2565 would direct the Federal Emergency 
Management Agency (FEMA) to analyze different methods and 
develop a plan for incorporating the actual replacement cost of 
each structure insured by the National Flood Insurance Program 
(NFIP) into the premium charged to each property owner. The 
bill also would require FEMA to submit the plan and an analysis 
of any alternative plans it considered to the Congress. FEMA 
would then be required to phase in its plan over a three-year 
period.
    CBO estimates that implementing H.R. 2565 would cost $15 
million over the 2018-2022 period, assuming appropriation of 
the necessary amounts. CBO estimates that enacting the 
legislation would affect direct spending; therefore, pay-as-
you-go procedures apply. However, those effects would not be 
significant. Enacting the bill would not affect revenues.
    CBO estimates that enacting H.R. 2565 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2028.
    H.R. 2565 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 2565 is shown in the following table. 
The costs of this legislation fall within budget function 450 
(community and regional development).

----------------------------------------------------------------------------------------------------------------
                                                                By fiscal year, in millions of dollars--
                                                      ----------------------------------------------------------
                                                        2017    2018    2019    2020    2021    2022   2017-2022
----------------------------------------------------------------------------------------------------------------
                                 INCREASES IN SPENDING SUBJECT TO APPROPRIATION
 
Estimated Authorization Level........................       0       3       3       3       3       3        15
Estimated Outlays....................................       0       3       3       3       3       3        15
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that H.R. 
2565 will be enacted near the end of fiscal year 2017 and that 
the necessary amounts will be appropriated each year. Estimated 
outlays are based on historical spending patterns for similar 
programs.
    NFIP policies are available to insure up to $250,000 of the 
value of residential properties or up to $500,000 of the value 
of nonresidential properties. In general, properties with a 
greater replacement value incur more costly flood claims than 
those with smaller replacement values--even when those 
properties face the same risk of flooding. However, properties 
that face the same flood risk are charged the same premium even 
if the replacement value of those structures is significantly 
different. Under current law, FEMA accounts for the different 
replacement value of structures with NFIP policies by 
incorporating an under-insurance adjustment factor. That 
adjustment factor is applied to all NFIP premiums such that 
premiums are sufficient to cover expected claims.
    Under H.R. 2565, FEMA would be required to develop and 
implement a plan to incorporate the replacement value of each 
individual insured structure into the premium charged to the 
owner of that structure. That would change the methodology for 
determining the adjustment factor for replacement values: 
instead of using an average factor to adjust all policies, FEMA 
would be required to calculate and use a specific adjustment 
factor for each individual policy based on its coverage 
premiums and the replacement value of the individual structure.
    CBO expects the changes required under H.R. 2565 would not 
significantly alter the total amount of premiums collected from 
NFIP policyholders in any year. Rather, the changes would 
adjust some policyholders' premiums upward and other 
policyholders' premiums downward such that the total premium 
collections would remain about the same as they otherwise would 
be under current law.
    According to FEMA, the agency is already preparing to 
determine how to incorporate replacement cost value into 
premiums as a part of a larger effort to redesign premiums for 
the NFIP. Based on an analysis of information from by FEMA, CBO 
estimates that implementing H.R. 2565 would cost $15 million 
over the 2018-2022 period to obtain additional data from 
policyholders to complete the redesign of NFIP premiums and 
incorporate replacement values for each policy.
    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. Because using a specific under-insurance adjustment 
factor for each individual NFIP policy rather than an average 
adjustment factor for all policies would not affect the total 
NFIP premiums collected, CBO expects that enacting H.R. 2565 
would have no significant effect on direct spending in any 
year. Enacting the bill would not affect revenues.
    Increase in long-term direct spending and deficits: CBO 
estimates that enacting H.R. 2565 would not increase net direct 
spending or on-budget deficits in any of the four consecutive 
10-year periods beginning in 2028.
    Intergovernmental and private-sector impact: H.R. 2565 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal costs: Robert Reese; Impact 
on state, local, and tribal governments: Rachel Austin; Impact 
on the private sector: Logan Smith.
    Estimate approved by: H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 2565 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(c)(5) of rule XIII, the Committee 
states that no provision of H.R. 2565 establishes or 
reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 115th Cong. (2017), 
the Committee states that H.R. 2565 contains no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Sec. 1 Use of replacement cost in determining premium rates

    The Administrator shall conduct a study to evaluate 
insurance industry best practices for risk rating and 
classification, including practices related to replacement cost 
value in premium rate estimations and developing a feasible 
implementation plan and projected timeline for including 
replacement costs value in the estimates of risk premium rates 
for flood insurance made available under the NFIP. Effective 
twelve months after the bill's enactment, the Administrator 
shall submit to Congress a report that contains the results and 
conclusions of the study. The report shall include an analysis 
of the recommendations resulting from the study and any 
potential impacts on the NFIP; a description of any actions 
taken by the Administrator to implement the study 
recommendations; and a description of any study recommendations 
that have been deferred or not acted upon. This section also 
requires the Administrator to incorporate up-to-date 
replacement cost values, by structure, when calculating annual 
chargeable premium rates, as opposed to the current practice 
that relied upon a national average, over a 1-3 year period.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

NATIONAL FLOOD INSURANCE ACT OF 1968

           *       *       *       *       *       *       *



TITLE XIII--NATIONAL FLOOD INSURANCE

           *       *       *       *       *       *       *



CHAPTER I--THE NATIONAL FLOOD INSURANCE PROGRAM

           *       *       *       *       *       *       *



                       estimates of premium rates

  Sec. 1307. (a) The Administrator is authorized to undertake 
and carry out such studies and investigations and receive or 
exchange such information as may be necessary to estimate, and 
shall from time to time estimate, on an area, subdivision, or 
other appropriate basis--
          (1) the risk premium rates for flood insurance, which 
        shall incorporate replacement cost value, and which--
                  (A) based on consideration of--
                          (i) the risk involved and accepted 
                        actuarial principles; and
                          (ii) the flood mitigation activities 
                        that an owner or lessee has undertaken 
                        on a property, including differences in 
                        the risk involved due to land use 
                        measures, floodproofing, flood 
                        forecasting, and similar measures, and
                  (B) including--
                          (i) the applicable operating costs 
                        and allowances set forth in the 
                        schedules prescribed under section 1311 
                        and reflected in such rates,
                          (ii) any administrative expenses (or 
                        portion of such expenses) of carrying 
                        out the flood insurance program which, 
                        in his discretion, should properly be 
                        reflected in such rates,
                          (iii) any remaining administrative 
                        expenses incurred in carrying out the 
                        flood insurance and floodplain 
                        management programs (including the 
                        costs of mapping activities under 
                        section 1360) not included under clause 
                        (ii), which shall be recovered by a fee 
                        charged to policyholders and such fee 
                        shall not be subject to any agents' 
                        commissions, company expense 
                        allowances, or State or local premium 
                        taxes, and
                          (iv) all costs, as prescribed by 
                        principles and standards of practice in 
                        ratemaking adopted by the American 
                        Academy of Actuaries and the Casualty 
                        Actuarial Society, including--
                                  (I) an estimate of the 
                                expected value of future costs,
                                  (II) all costs associated 
                                with the transfer of risk, and
                                  (III) the costs associated 
                                with an individual risk 
                                transfer with respect to risk 
                                classes, as defined by the 
                                Administrator,
        would be required in order to make such insurance 
        available on an actuarial basis for any types and 
        classes of properties for which insurance coverage is 
        available under section 1305(a) (or is recommended to 
        the Congress under section 1305(b));
          (2) the rates, if less than the rates estimated under 
        paragraph (1), which would be reasonable, would 
        encourage prospective insureds to purchase flood 
        insurance, and would be consistent with the purposes of 
        this title, and which, together with a fee charged to 
        policyholders that shall not be not subject to any 
        agents' commission, company expenses allowances, or 
        State or local premium taxes, shall include any 
        administrative expenses incurred in carrying out the 
        flood insurance and floodplain management programs 
        (including the costs of mapping activities under 
        section 1360), except that the Administrator shall not 
        estimate rates under this paragraph for--
                  (A) any residential property which is not the 
                primary residence of an individual;
                  (B) any severe repetitive loss property;
                  (C) any property that has incurred flood-
                related damage in which the cumulative amounts 
                of payments under this title equaled or 
                exceeded the fair market value of such 
                property;
                  (D) any business property; or
                  (E) any property which on or after the date 
                of enactment of the Biggert-Waters Flood 
                Insurance Reform Act of 2012 has experienced or 
                sustained--
                          (i) substantial damage exceeding 50 
                        percent of the fair market value of 
                        such property; or
                          (ii) substantial improvement 
                        exceeding 50 percent of the fair market 
                        value of such property; and
          (3) the extent, if any, to which federally assisted 
        or other flood protection measures initiated after the 
        date of the enactment of this title affect such rates.
  (b) In carrying out subsection (a), the Administrator shall, 
to the maximum extent feasible and on a reimbursable basis, 
utilize the services of the Department of the Army, the 
Department of the Interior, The Department of Agriculture, the 
Department of Commerce, and the Tennessee Valley Authority, 
and, as appropriate, other Federal departments or agencies, and 
for such purposes may enter into agreements or other 
appropriate arrangements with any persons.
  (c) The Administrator shall give priority to conducting 
studies and investigations and making estimates under this 
section in those States or areas (or subdivisions thereof) 
which he has determined have evidenced a positive interest in 
securing flood insurance coverage under the flood insurance 
program.
  (d) Notwithstanding any other provision of law, any structure 
existing on the date of enactment of the Flood Disaster 
Protection Act of 1973 and located within Avoyelles, 
Evangeline, Rapides, or Saint Landry Parish in the State of 
Louisiana, which the Administrator determines is subject to 
additional flood hazards as a result of the construction or 
operation of the Atchafalaya Basin Levee System, shall be 
eligible for flood insurance under this title (if and to the 
extent it is eligible for such insurance under the other 
provisions of this title) at premium rates that shall not 
exceed those which would be applicable if such additional 
hazards did not exist.
  (e) Notwithstanding any other provision of law, any community 
that has made adequate progress, acceptable to the 
Administrator, on the construction or reconstruction of a flood 
protection system which will afford flood protection for the 
one-hundred-year frequency flood as determined by the 
Administrator, shall be eligible for flood insurance under this 
title (if and to the extent it is eligible for such insurance 
under the other provisions of this title) at premium rates not 
exceeding those which would be applicable under this section if 
such flood protection system had been completed. The 
Administrator shall find that adequate progress on the 
construction or reconstruction of a flood protection system, 
based on the present value of the completed flood protection 
system, has been made only if: (1) 100 percent of the cost of 
the system has been authorized; (2) at least 60 percent of the 
cost of the system has been appropriated; (3) at least 50 
percent of the cost of the system has been expended; and (4) 
the system is at least 50 percent completed.Notwithstanding any 
other provision of law, in determining whether a community has 
made adequate progress on the construction, reconstruction, or 
improvement of a flood protection system, the Administrator 
shall consider all sources of funding, including Federal, 
State, and local funds.
  (f) Notwithstanding any other provision of law, this 
subsection shall apply to riverine and coastal levees that are 
located in a community which has been determined by the 
Administrator of the Federal Emergency Management Agency to be 
in the process of restoring flood protection afforded by a 
flood protection system that had been previously accredited on 
a Flood Insurance Rate Map as providing 100-year frequency 
flood protection but no longer does so, and shall apply without 
regard to the level of Federal funding of or participation in 
the construction, reconstruction, or improvement of the flood 
protection system. Except as provided in this subsection, in 
such a community, flood insurance shall be made available to 
those properties impacted by the disaccreditation of the flood 
protection system at premium rates that do not exceed those 
which would be applicable to any property located in an area of 
special flood hazard, the construction of which was started 
prior to the effective date of the initial Flood Insurance Rate 
Map published by the Administrator for the community in which 
such property is located. A revised Flood Insurance Rate Map 
shall be prepared for the community to delineate as Zone AR the 
areas of special flood hazard that result from the 
disaccreditation of the flood protection system. A community 
will be considered to be in the process of restoration if--
          (1) the flood protection system has been deemed 
        restorable by a Federal agency in consultation with the 
        local project sponsor;
          (2) a minimum level of flood protection is still 
        provided to the community by the disaccredited system; 
        and
          (3) restoration of the flood protection system is 
        scheduled to occur within a designated time period and 
        in accordance with a progress plan negotiated between 
        the community and the Federal Emergency Management 
        Agency.
Communities that the Administrator of the Federal Emergency 
Management Agency determines to meet the criteria set forth in 
paragraphs (1) and (2) as of January 1, 1992, shall not be 
subject to revised Flood Insurance Rate Maps that contravene 
the intent of this subsection. Such communities shall remain 
eligible for C zone rates for properties located in zone AR for 
any policy written prior to promulgation of final regulations 
for this section. Floodplain management criteria for such 
communities shall not require the elevation of improvements to 
existing structures and shall not exceed 3 feet above existing 
grade for new construction, provided the base flood elevation 
based on the disaccredited flood control system does not exceed 
five feet above existing grade, or the remaining new 
construction in such communities is limited to infill sites, 
rehabilitation of existing structures, or redevelopment of 
previously developed areas.
The Administrator of the Federal Emergency Management Agency 
shall develop and promulgate regulations to implement this 
subsection, including minimum floodplain management criteria, 
within 24 months after the date of enactment of this 
subsection.
  (g) No Extension of Subsidy to New Policies or Lapsed 
Policies.--The Administrator shall not provide flood insurance 
to prospective insureds at rates less than those estimated 
under subsection (a)(1), as required by paragraph (2) of that 
subsection, for--
          (1) any policy under the flood insurance program that 
        has lapsed in coverage,, unless the decision of the 
        policy holder to permit a lapse in flood insurance 
        coverage was as a result of the property covered by the 
        policy no longer being required to retain such 
        coverage; or
          (2) any prospective insured who refuses to accept any 
        offer for mitigation assistance by the Administrator 
        (including an offer to relocate), including an offer of 
        mitigation assistance--
                  (A) following a major disaster, as defined in 
                section 102 of the Robert T. Stafford Disaster 
                Relief and Emergency Assistance Act (42 U.S.C. 
                5122); or
                  (B) in connection with--
                          (i) a repetitive loss property; or
                          (ii) a severe repetitive loss 
                        property.
  (h) Definition.--In this section, the term ``severe 
repetitive loss property'' has the following meaning:
          (1) Single-family properties.--In the case of a 
        property consisting of 1 to 4 residences, such term 
        means a property that--
                  (A) is covered under a contract for flood 
                insurance made available under this title; and
                  (B) has incurred flood-related damage--
                          (i) for which 4 or more separate 
                        claims payments have been made under 
                        flood insurance coverage under this 
                        chapter, with the amount of each such 
                        claim exceeding $5,000, and with the 
                        cumulative amount of such claims 
                        payments exceeding $20,000; or
                          (ii) for which at least 2 separate 
                        claims payments have been made under 
                        such coverage, with the cumulative 
                        amount of such claims exceeding the 
                        value of the property.
          (2) Multifamily properties.--In the case of a 
        property consisting of 5 or more residences, such term 
        shall have such meaning as the Director shall by 
        regulation provide.

               establishment of chargeable premium rates

  Sec. 1308. (a) On the basis of estimates made under section 
1307 and such other information as may be necessary, the 
Administrator shall from time to time prescribe, after 
providing notice--
          (1) chargeable premium rates for any types and 
        classes of properties for which insurance coverage 
        shall be available under section 1305 (at less than the 
        estimated risk premium rates under section 1307(a)(1), 
        where necessary), and
          (2) the terms and conditions under which, and the 
        areas (including subdivisions thereof) within which 
        such rates shall apply.
  (b) Such rates shall incorporate replacement cost value and 
shall, insofar as practicable, be--
          (1) based on a consideration of the respective risks 
        involved, including differences in risks due to land 
        use measures, flood-proofing, flood forecasting, and 
        similar measures;
          (2) adequate, on the basis of accepted actuarial 
        principles, to provide reserves for anticipated losses, 
        or if less than such amount consistent with the 
        objective of making flood insurance available where 
        necessary at reasonable rates so as to encourage 
        prospective insureds to purchase such insurance and 
        with the purposes of this title;
          (3) adequate, together with the fee under paragraph 
        (1)(B)(iii) or (2) of section 1307(a), to provide for 
        any administrative expenses of the flood insurance and 
        floodplain management programs (including the costs of 
        mapping activities under section 1360);
          (4) stated so as to reflect the basis for such rates, 
        including the differences (if any) between the 
        estimated risk premium rates under section 1307(a)(1) 
        and the estimated rates under section 1307(a)(2); and
          (5) adequate, on the basis of accepted actuarial 
        principles, to cover the average historical loss year 
        obligations incurred by the National Flood Insurance 
        Fund.
  (c) Actuarial Rate Properties.--Subject only to the 
limitations provided under paragraphs (1) and (2), the 
chargeable rate shall not be less than the applicable estimated 
risk premium rate for such area (or subdivision thereof) under 
section 1307(a)(1) with respect to the following properties:
          (1) Post-firm properties.--Any property the 
        construction or substantial improvement of which the 
        Administrator determines has been started after 
        December 31, 1974, or started after the effective date 
        of the initial rate map published by the Administrator 
        under paragraph (2) of section 1360 for the area in 
        which such property is located, whichever is later, 
        except that the chargeable rate for properties under 
        this paragraph shall be subject to the limitation under 
        subsection (e).
          (2) Certain leased coastal and river properties.--Any 
        property leased from the Federal Government (including 
        residential and nonresidential properties) that the 
        Administrator determines is located on the river-facing 
        side of any dike, levee, or other riverine flood 
        control structure, or seaward of any seawall or other 
        coastal flood control structure.
  (d) With respect to any chargeable premium rate prescribed 
under this section, a sum equal to the portion of the rate that 
covers any administrative expenses of carrying out the flood 
insurance and floodplain management programs which have been 
estimated under paragraphs (1)(B)(ii) and (1)(B)(iii) of 
section 1307(a) or paragraph (2) of such section (including the 
fees under such paragraphs), shall be paid to the 
Administrator. The Administrator shall deposit the sum in the 
National Flood Insurance Fund established under section 1310.
  (e) Annual Limitation on Premium Increases.--Except with 
respect to properties described under paragraph (2) of 
subsection (c), and notwithstanding any other provision of this 
title--
          (1) the chargeable risk premium rate for flood 
        insurance under this title for any property may not be 
        increased by more than 18 percent each year, except--
                  (A) as provided in paragraph (4);
                  (B) in the case of property identified under 
                section 1307(g); or
                  (C) in the case of a property that--
                          (i) is located in a community that 
                        has experienced a rating downgrade 
                        under the community rating system 
                        program carried out under section 
                        1315(b);
                          (ii) is covered by a policy with 
                        respect to which the policyholder has--
                                  (I) decreased the amount of 
                                the deductible; or
                                  (II) increased the amount of 
                                coverage; or
                          (iii) was misrated;
          (2) the chargeable risk premium rates for flood 
        insurance under this title for any properties initially 
        rated under section 1307(a)(2) within any single risk 
        classification, excluding properties for which the 
        chargeable risk premium rate is not less than the 
        applicable estimated risk premium rate under section 
        1307(a)(1), shall be increased by an amount that 
        results in an average of such rate increases for 
        properties within the risk classification during any 
        12-month period of not less than 5 percent of the 
        average of the risk premium rates for such properties 
        within the risk classification upon the commencement of 
        such 12-month period;
          (3) the chargeable risk premium rates for flood 
        insurance under this title for any properties within 
        any single risk classification may not be increased by 
        an amount that would result in the average of such rate 
        increases for properties within the risk classification 
        during any 12-month period exceeding 15 percent of the 
        average of the risk premium rates for properties within 
        the risk classification upon the commencement of such 
        12-month period; and
          (4) the chargeable risk premium rates for flood 
        insurance under this title for any properties described 
        in subparagraphs (A) through (E) of section 1307(a)(2) 
        shall be increased by 25 percent each year, until the 
        average risk premium rate for such properties is equal 
        to the average of the risk premium rates for properties 
        described under paragraph (3).
  (f) Adjustment of Premium.--Notwithstanding any other 
provision of law, if the Administrator determines that the 
holder of a flood insurance policy issued under this Act is 
paying a lower premium than is required under this section due 
to an error in the flood plain determination, the Administrator 
may only prospectively charge the higher premium rate.
  (g) Frequency of Premium Collection.--With respect to any 
chargeable premium rate prescribed under this section, the 
Administrator shall provide policyholders that are not required 
to escrow their premiums and fees for flood insurance as set 
forth under section 102 of the Flood Disaster Protection Act of 
1973 (42 U.S.C. 4012a) with the option of paying their premiums 
annually or monthly.
  (h) Rule of Construction.--For purposes of this section, the 
calculation of an ``average historical loss year''--
          (1) includes catastrophic loss years; and
          (2) shall be computed in accordance with generally 
        accepted actuarial principles.
  (i) Rates for Properties Newly Mapped into Areas with Special 
Flood Hazards.--Notwithstanding subsection (f), the premium 
rate for flood insurance under this title that is purchased on 
or after the date of the enactment of this subsection--
          (1) on a property located in an area not previously 
        designated as having special flood hazards and that, 
        pursuant to any issuance, revision, updating, or other 
        change in a flood insurance map, becomes designated as 
        such an area; and
          (2) where such flood insurance premium rate is 
        calculated under subsection (a)(1) of section 1307 (42 
        U.S.C. 4014(a)(1)),
shall for the first policy year be the preferred risk premium 
for the property and upon renewal shall be calculated in 
accordance with subsection (e) of this section until the rate 
reaches the rate calculated under subsection (a)(1) of section 
1307.
  (j) Premiums and Reports.--In setting premium risk rates, in 
addition to striving to achieve the objectives of this title 
the Administrator shall also strive to minimize the number of 
policies with annual premiums that exceed one percent of the 
total coverage provided by the policy. For any policies 
premiums that exceed this one percent threshold, the 
Administrator shall report such exceptions to the Committee on 
Financial Services of the House of Representatives and the 
Committee on Banking, Housing, and Urban Affairs of the Senate.
  (k) Consideration of Mitigation Methods.--In calculating the 
risk premium rate charged for flood insurance for a property 
under this section, the Administrator shall take into account 
the implementation of any mitigation method identified by the 
Administrator in the guidance issued under section 1361(d) (42 
U.S.C. 4102(d)).
  (l) Clear Communications.--The Administrator shall clearly 
communicate full flood risk determinations to individual 
property owners regardless of whether their premium rates are 
full actuarial rates.
  (m) Protection of Small Businesses, Non-Profits, Houses of 
Worship, and Residences.--
          (1) Report.--Not later than 18 months after the date 
        of the enactment of this section and semiannually 
        thereafter, the Administrator shall monitor and report 
        to Committee on Financial Services of the House 
        Representatives and the Committee on Banking, Housing, 
        and Urban Affairs of the Senate, the Administrator's 
        assessment of the impact, if any, of the rate increases 
        required under subparagraphs (A) and (D) of section 
        1307(a)(2) and the surcharges required under section 
        1308A on the affordability of flood insurance for--
                  (A) small businesses with less than 100 
                employees;
                  (B) non-profit entities;
                  (C) houses of worship; and
                  (D) residences with a value equal to or less 
                than 25 percent of the median home value of 
                properties in the State in which the property 
                is located.
          (2) Recommendations.--If the Administrator determines 
        that the rate increases or surcharges described in 
        paragraph (1) are having a detrimental effect on 
        affordability, including resulting in lapsed policies, 
        late payments, or other criteria related to 
        affordability as identified by the Administrator, for 
        any of the properties identified in subparagraphs (A) 
        through (D) of such paragraph, the Administrator shall, 
        not later than 3 months after making such a 
        determination, make such recommendations as the 
        Administrator considers appropriate to improve 
        affordability to the Committee on Financial Services of 
        the House of Representatives and the Committee on 
        Banking, Housing, and Urban Affairs of the Senate.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 2565 would require the Federal Emergency Management 
Agency (FEMA) to study and then immediately implement a change 
in the way flood insurance rates are calculated. Currently, 
FEMA uses a national average replacement value when setting 
rates. H.R. 2565 would require FEMA to instead use the specific 
replacement value of the property to be insured. While this 
would result in more precise rates for the specific property, 
it could result in higher premiums for certain properties 
across the country.
    The use of a national average means that, in general, 
policyholders with properties below the average value may be 
overpaying for flood insurance, while policyholders with 
properties above the average value may be underpaying for flood 
insurance. This is an issue that should be further studied.
    However, Congress should have the opportunity to review the 
results of the study to better determine exactly what the 
impacts will be if this change were enacted. At this time, it 
is unclear what the ``pivot point'' at which premiums would be 
affected, and it is equally unclear how fast or by how much 
premiums would rise or fall as a result of this change.
    Given the broader affordability challenges associated with 
flood insurance premiums, we must be cautious in calling for 
changes that could have unintended consequences on flood 
insurance costs. If flood insurance becomes widely 
unaffordable, this could have devastating consequences on the 
housing market as policyholders lose the ability to purchase 
coverage, and are left unprotected in the event of a flood.
    For these reasons, we oppose H.R. 2565.

                                   Maxine Waters.
                                   Michael E. Capuano.
                                   Carolyn B. Maloney.
                                   Keith Ellison.
                                   Stephen F. Lynch.
                                   Joyce Beatty.
                                   Vicente Gonzales.
                                   Gwen Moore.
                                   Brad Sherman.
                                   Al Green.
                                   Emanuel Cleaver.
                                   Daniel T. Kildee.
                                   Charlie Crist.
                                   Nydia Velazquez.
                                   Gregory Meeks.

                                  [all]