Expressing strong support for the National Flood Insurance Program (NFIP) and presenting five principles that should be the focus of reform efforts, J. Fletcher Willey testified on behalf of the Independent Insurance Agents & Brokers of America (IIABA) before the House Financial Services Housing Subcommittee.
The subcommittee, chaired by Rep. Bob Ney (R-Ohio), held a hearing to examine the nation’s flood insurance program and discuss reform proposals—specifically plans to deal with the problem of repetitive-loss properties. The Federal Emergency Management Agency (FEMA), which administers the program, has found that 48,000 insured properties are considered repetitive-loss risks and estimates that they alone incur $200 million in losses annually. Repetitive-loss properties are defined as those structures with two or more losses greater than $1,000 each within a 10-year period.
Willey is the chair of IIABA’s Government Affairs Committee Flood Insurance Task Force and is president of J. Fletcher Willey Agency Inc. in Nags Head, N.C. Willey testified as an industry expert, as independent insurance agents and brokers play a vital role in the delivery system for flood insurance. The majority of flood policies are sold by more than 110,000 insurance agents participating in the NFIP’s “Write Your Own” program.
“The NFIP provides an important service to people and places that have been hit by a natural disaster,” Willey said in his testimony. “The private insurance industry has been, and continues to be, almost entirely unwilling to underwrite flood insurance because of the catastrophic nature of these disasters. Therefore, NFIP is virtually the only way for people to protect against the loss of their home or business.”
Reps. Richard H. Baker (R-La.) and Doug Bereuter (R-Neb.) have introduced separate bills aimed to help FEMA reduce the amount of money spent on frequently flooded properties. Baker is sponsoring The Flood Loss Mitigation Act (H.R. 670) and Bereuter has introduced The Two Floods and You Are Out of the Taxpayer’s Pocket Act (H.R. 253).
Acknowledging that reforms of the program are necessary to address operating losses and make the NFIP actuarially sound, Willey outlined five principles that IIABA believes must be included in reform efforts:
Strengthen NFIP Building Regulations—Building regulations help communities better manage their floodplains by requiring communities to ensure that any new construction in floodplains includes safeguards against flood damage (i.e. building new homes above the flood elevation on pilings) and requiring that any substantial improvements made to existing buildings in the floodplain incorporate safeguards similar to those required for new construction.
Enforce the Mandatory-Purchase Requirement—FEMA has found that fewer than 25 percent of buildings in areas covered by the mandatory-purchase requirement are actually covered by flood insurance. Improved enforcement of the mandatory-purchase requirement will enable NFIP to collect additional premium to help balance its books.
Provide Additional Mitigation Resources—NFIP can prevent losses through buying homes and businesses in the most flood-prone areas so that those property owners can move out of the floodplain, and through providing grants to owners of existing properties so that they can make structural improvements that decrease the risk of flood loss. These preventative measures will decrease the number of repetitive claims and save the NFIP and taxpayers significant funds.
Stop Abuse Through Multiple Claims—Some individuals have bought in flood zones in order to take advantage of repeat NFIP payments. These individuals must be removed from the program or required to pay the full, unsubsidized premium based on sound actuarial standards. Reducing abuse will be an important boost to the financial soundness of the NFIP.
Require Mandatory Disclosures—Reform needs to include mandatory disclosures of a property’s flood history so that buyers can make an informed choice in their purchases and properly value their home. The disclosure should bring more people into the NFIP after providing them the information about their risks.
IIABA also is urging Congress to change the reauthorization period from one year to five years and move the expiration day from the end of the year to another time. This would ensure the program does not expire when Congress is adjourned, as occurred at the end of this past year.
Congress established the NFIP in 1968 to ensure the availability of flood insurance in communities that agreed to manage flood losses. The NFIP now has nearly 4.4 million policies, representing $623 billion in coverage in almost 20,000 communities across the country.
“We hope that we will be able to work with the subcommittee as you evaluate the different proposals for reform to meet the fiscal goals of the NFIP with the least amount of disruption to people’s lives,” Willey said. “Our members have significant experience with the NFIP and with the people who will be directly affected by reform—flood insurance policyholders.”