What a Government Shutdown Means for the NFIP

As the United States barrels toward the end of the fiscal year, a stalemate over the budget is making a government shutdown seem more likely by the day. Without a budget resolution in place by the Sept. 30 deadline, federal agencies must stop all non-essential work.

In a memorandum issued this week, FEMA said the shutdown “would significantly impact the NFIP’s normal operations” because it would not be allowed to enter into any flood insurance contracts. The FEMA guidance also contains a helpful FAQ section and sample letter that could be used to communicate the effects of the lapse in authority with prospective policyholders.

During a lapse in authority, a WYO Company or NFIP Direct may not:

• Issue policies for new business;
• Issue policies for requests to increase or add coverage; or
• Issue renewal notices.

Existing policies that do not expire during the shutdown will still be in effect and claims can be paid out, however with the lapse in authority, thousands of real estate transactions where flood insurance is required by Congress could be impacted.

With the House in gridlock, last night the Senate proposed a stopgap measure to extend current funding levels through Nov. 17. This Continuing Resolution (CFR) would extend the NFIP authority through the duration of the CR and also contains $6 billion to replenish FEMA’s Disaster Relief Fund, short of the $16 billion the administration wanted. The measure would free up another $20 billion for disaster aid by allowing FEMA to tap its full-year appropriation up front.

Unfortunately, we’ve been here before. The NFIP received 17 short-term extensions between 2008 and 2012, and 25 such extensions since 2017. Its most recent lapse was from Jan 20-22, 2018. Other lapses were March 1-2, 2010; March 29 – April 15, 2010; June 1 – July 2, 2010; and October 1-5, 2011. In most cases when the NFIP lapsed, Congress reauthorized the NFIP retroactively, according to a recent brief by the Congressional Research Service. 

Our policy team will provide updates as we gain additional insights.