The Independent Insurance Agents & Brokers of America (the Big “I”) released a set of 22 recommendations for needed improvements to the National Flood Insurance Program (NFIP).
The recommendations, if adopted, propose to modernize coverage, simplify processing and claims and expedite enforcement, among other things.
“Reform of the NFIP is a top priority of the Big ‘I’. Our customers need a viable product that provides adequate coverage with a fair and quick claims process. The last few hurricanes exposed some of the weaknesses of the of the NFIP, and we want to address them in a thoughtful way,” says Big “I” President Bill Stiglitz, an account executive with Hyland, Block & Hyland in Louisville, Ky.
The Big “I” proposal has six sections, including modernization of coverage; actuarial pricing/subsidization considerations; mandatory coverage/take-up rates; processing and claims simplification; enforcement; and miscellaneous suggestions.
The modernization section contains six recommendations:
1) Increase maximum coverage limits above $250,000 residential and $500,000 commercial to reflect modern-day real-estate prices, and consider periodic adjustments to reflect inflation.
2) Provide an automatic, base amount of contents coverage for all building policies, with increased contents coverage up to the current maximum limits available for additional fees.
3) Provide an automatic, base amount of additional living expenses coverage on residential policies, with an option to purchase increased coverage for a fee.
4) Add optional business interruption coverage on commercial policies.
5) Add optional basement coverage on residential policies for finished basements.
6) Add optional replacement-cost coverage for personal contents and commercial contents/buildings.
“The recommendations in the modernization section reflect the real and pressing need for changes to the flood program reflecting modern-day market realities,” says Charles E. Symington, Jr., Big “I” senior vice president for government affairs and federal relations. “These changes would close many of the gaps existing under the current program and give insurance buyers options they currently don’t have, which would be very good news for consumers.”
Four provisions under actuarial pricing/subsidization considerations and three under mandatory coverage/take-up rates would address insurer risk. This would include revoking subsidization on pre-FIRM (Flood Insurance Rate Map) properties or mandating elevation/retrofitting to modern building code standards; charging a more actuarially sound rate for properties in flood-prone areas; effectively enforcing mitigation provisions from the Flood Insurance Reform Act (FIRA) of 2004 with a possible Government Accountability Office (GAO) study; and increasing the annual elasticity band for premium increases beyond the current 10 percent annual maximum.
Provisions in the mandatory coverage section also include extending the mandatory coverage model beyond the 1-in-100-year floodplains to 1-in-250 or 1-in-500; expanding the current mandatory purchase rules to include all flood-zone loans and mandating coverage for those living in levee-protected areas; and appropriating additional funds for the map-modernization program beyond the current funding sunset date.
“There is a pressing need for long-term flood-risk mitigation and mandatory coverage for mortgaged properties in flood zones,” says Patrick O’Brien, Big “I” director of federal government affairs. “Enactment and enforcement of these recommendations would ultimately benefit consumers. Enforcement is the key. Without vigilant enforcement, the underlying law doesn’t mean much.”
Additionally, two provisions proposed would relate to processing and claims simplification, as well as avoiding unnecessary claims paperwork and allowing agents and loss adjusters to work more closely together during the adjustment phase.
Enforcement provisions proposed would include updating the life-of-loan tracking system to ensure renewal of policies during refinancing or securitization; consideration of an escrow payment system similar to property taxes and homeowners’ policies; and identification of a responsible sector for enforcement: public/private initiative, private sector, or the Federal Emergency Management Agency (FEMA).
And the final four miscellaneous provisions proposed would reduce the purchase waiting period from 30 days to 15; create a comprehensive database of flood history for all properties and ensure availability to all prospective buyers prior to the point of sale; coordinate flood policy descriptions with other property and casualty lines to avoid inconsistency in terms; and commission a study to consider long-term NFIP modernization.