U.S. P/C Insurance Groups: House NFIP Reform Bill Would Harm Private Flood Market

June 12, 2017
AP Photo

The U.S. P/C industry’s major trade associations say they oppose several provisions in draft legislation that would revamp the National Flood Insurance Program. Their big worry: that the revamp as it stands right now could harm a program that has helped boost private sector involvement.

“We oppose the legislative package in its current form as it will likely negatively impact consumers and not provide the reforms needed to encourage growth of a private flood market as an alternative,” reads the letter to the U.S. House of Representatives Committee on Financial Services/Subcommittee on Housing and Insurance, which is working on the draft NFIP revamp with a goal of renewing the program before the current version expires on Sept. 30.

The National Association of Mutual Insurance Companies, the Property Casualty Insurers Association of America, The American Insurance Association and the Independent Insurance Agents & Brokers of America jointly signed the letter.

At issue is how the draft legislation would affect the Write-Your-Own Program, which, as the trade associations note in their June 12 letter was launched in 1983 under President Ronald Regan to boost the number of homeowners with flood insurance, and improve customer service by using the private sector insurance infrastructure of “experienced insurance agents and companies to sell and service NFIP policies.”

The letter asserts that WYO companies and agents write 86 percent of all NFIP policies affecting 4.29 million policy holders. But the property/casualty trade associations are afraid that the draft House legislation would drastically reduce WYO activity, decreasing private-sector involvement in the NFIP program as a result.

“We are concerned … that several provisions in the draft legislation would dramatically reduce private sector participation in the program by adding new regulatory burdens for Write-Your-Own companies and agents while simultaneously imposing a below-market cap on their reimbursement rates for existing services provided,” the letter states.

Those changes, according to the letter, would make “continued participation in the WYO program untenable for many insurance carriers, limiting options for consumers and ultimately raising costs for the government as more and more policies move to the NFIP-Direct program.”

In arguing to take WYOs into account, the letter notes that Senate Banking Committee data has shown that WYO agents have helped educate policyholders about flood risks “and have a better claims paying record than the NFIP direct.” As well, according to the letter, “Congressional witnesses” have voiced a similar assertion that “the WYOs perform far better than the government in communicating and managing claims.”

The letter offers “policy recommendations for inclusion into a final bill” that would help reform the NFIP without adding “unnecessary and drastic costs on those who sell and service NFIP policies.”

Authors of the draft legislation say that it would introduce reforms to put the NFIP on stronger financial footing; provide aid for those who can’t afford it; improve flood mapping, mitigation efforts and claims handling; and encourage greater private participation in the market.

For a full breakdown of House’s proposed NFIP revamp, click here.

Source: NAMIC, IIABA, PCI, AIA