House lawmakers are weighing seven proposals to renew and reform the federal flood insurance program, an area where there is a good amount of bipartisan agreement that something should be done and even on what to do.
The House Financial Services Committee, chaired by Rep. Jeb Hensarling (R-Tex.) is meeting today to mark-up legislation to reauthorize the National Flood Insurance Program (NFIP), which is set to expire on Sept. 30, and to reform the program that is $24 billion in debt.
The mark-up session had originally been scheduled for yesterday but was postponed due to the shooting in Virginia in which House Majority Whip Steve Scalise (R-La.) and four other people were injured.
In addition to renewing the NFIP, the various proposals aim to put the program on stronger financial footing, remove obstacles to greater private insurer participation in the market, limit payments for properties that flood repeatedly, reduce taxpayer subsidies, provide aid for those unable to afford coverage, improve flood mapping, encourage mitigation efforts and overhaul claims handling.
Chairman Hensarling opened the session with a promise to keep taxpayers’ interests at the forefront of the debate.
“There are so many important voices in our debate today on the reauthorization of the National Flood Insurance Program. Certainly the homeowners who have relied on this program — theirs is a very important voice because we go to their homes and we go to their household finances. Theirs is a very important voice. Homebuilders, they have an important voice. Insurance agents and companies, local communities — these are all important voices in this debate. But as far as I’m concerned, perhaps the single-most important voice is the voice that remains underrepresented in the debate and that is the voice of the American taxpayer,” Hensarling said.
He said he believes that homeowners should gradually be expected to pay actuarial rates. “They need predictability. We need to protect them from sticker shock, but the program must be made sustainable,” he said.
Rep. Maxine Waters (D-Calif), the highest ranking Democrat on the committee, expressed disappointment that there had not been more bipartisan agreement on some of the measures and concern that the package of bills might actually “make matters worse by restricting coverage, increasing costs, and opening the door to cherry-picking by the private sector.”
Waters also maintained that the process has been rushed and the bills are “replete” with technical errors.
“One important question is this: when all of these bills are put together, what will be the cumulative impact on cost for policyholders? What is this going to cost these communities? Mr. Chairman, when you add up all the premium increases, surcharges, assessments, cross-subsidies, and rate-changes, how will affordability be affected?” Waters asked in her opening statement.
The major bill, H.R. 2868, the National Flood Insurance Program Policyholder Protection Act of 2017, is a broad proposal that incorporates many of the ideas in individual bills. Rep. Sean Duffy (R-Wis.), chairman of the House Financial Services Subcommittee on Housing and Insurance, introduced a draft last month.
Its provisions aim put the NFIP on stronger financial footing; provide aid for those unable to afford coverage; improve flood mapping, mitigation efforts and claims handling; and encourage greater private insurer participation in the market.
The far-reaching draft reflects ideas from Republicans and Democrats, advocates for consumers and taxpayers, as well as ideas from the insurance, banking and real estate industries.
The U.S. P/C industry’s major trade associations, however, oppose several provisions in the draft legislation that they say could harm private sector involvement.
The National Association of Mutual Insurance Companies, Property Casualty Insurers Association of America, American Insurance Association and Independent Insurance Agents & Brokers of America recently jointly signed a letter to the Committee on Financial Services drawing attention to how the draft legislation would affect the Write-Your-Own Program, which uses the private insurance agents and companies to sell and service NFIP policies.
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 reduce private sector WYO activity by adding new regulatory burdens for WYO companies and agents while simultaneously lowering the reimbursements they get for their services.
The National Association of Professional Insurance Agents (PIA) has also come out in opposition to the proposed changes in the reimbursement percentage, which is used by carriers to pay administrative expenses as well as agent commissions.
According to PIA National, the reimbursement rate would drop from 30.9 percent to 27.9 percent over three years.
“One of the goals of reforming the NFIP is to increase sales of policies, especially preferred risk policies, to put the program on a firmer financial footing,” said Jon Gentile, vice president of government relations of PIA National. “Reducing agent compensation undermines that goal by applying a disincentive to increasing sales. It could lead to an exodus of qualified independent agents from the flood program, similar to the one that occurred from the Affordable Care Act (ACA) when agent commissions were cut.”
One of the individual bills is H.R. 1422, the Flood Insurance Market Parity and Modernization Act, which was introduced by U.S. Rep. Dennis A. Ross (R-Fla.). It aims to encourage the development of a private flood insurance market. by removing restrictions and give states more flexibility to license and regulate private flood insurance. This legislation is supported by a number of stakeholders including the Realtors, the National Association of Insurance Commissioners, and a coalition of taxpayer advocates, environmental groups, housing organizations and mitigation advocates.
HR 1558, the Repeatedly Flooded Communities Preparation Act, introduced by Rep. Ed Royce (R-Calif.) and Earl Blumenauer (D-Ore.). This bill proposes to limit NFIP payments on claims for properties flooded multiple times.
“A tiny number of properties that are flooded and rebuilt over-and-over again are responsible for a massive chunk of the indebted NFIP’s spending. Any serious effort by Congress to reform the Program and make it less of a drain on taxpayers needs to address repeatedly flooded properties and reward local communities making progress on mitigation,” said Royce.
As of January 2016, there were more than 150,000 structures around the country classified as repetitive loss properties by the Federal Emergency Management Agency (FEMA). FEMA estimates that these properties comprise just one percent of those insured by the NFIP, but represent 25 to 30 percent of all flood claims.
Rep. Blaine Luetkemeyer (R-Missouri) is advocating for his H.R.2246, the Taxpayer Exposure Mitigation Act of 2017, which would require more community involvement in mapping, mandate that FEMA purchase reinsurance or some capital market alternative to protect taxpayers from footing the bill for future losses, and allow businesses to opt-out of mandated requirements and more easily purchase private flood coverage. FEMA has already begun a reinsurance purchasing program. FEMA announced in January that it had it has secured more than $1 billion in reinsurance from a group of 25 reinsurers.
Leutkemeyer has also submitted H.R. 2565, which would require the Federal Emergency Management Agency (FEMA) to look at properties on an individual basis and incorporate a structure’s actual replacement cost in National Flood Insurance Program policies.
An ongoing online poll of InsuranceJournal.com readers suggests that opening the market to private insurers could benefit taxpayers the most. Thirty-seven percent of 327 respondents said taxpayers have the most to gain from shifting policies to the private sector, with private insurers (20 percent) and policyholders (19 percent) next in line as beneficiaries.
*This story appeared previously in our sister publication Insurance Journal.