Obama Opposes Expanding Flood Insurance Program to Cover Wind Damage

The Obama Administration has come out in opposition to expanding the federal flood insurance program by letting it add coverage for wind damage.

The administration said it opposes the expansion because it would further burden the debt-ridden flood program and because wind coverage is available in the private sector and through state wind pools.

It is backing proposals in Congress that would forgive the almost $20 billion debt of the National Flood Insurance Program.

The Obama Administration position was unveiled in an April 24 letter from U.S. Homeland Security Secretary Janet Napolitano to Rep. Barney Frank, D.-Mass., who chairs the House Financial Services Committee, which handles flood insurance legislation. Napolitano’s department includes the Federal Emergency Management Agency (FEMA) and the NFIP.

Napolitano said that federal wind insurance would not be less expensive than what would be available in the private market anyway because legislation requires that rates be actuarially sound.

She said federal wind coverage could also adversely affect competition and selection among the various state and private offerings.

“Many carriers in Florida have told the state’s insurance regulator that they would write the wind policies of insurers withdrawing from the state,” she wrote.

Rep. Gene Taylor, D.-Miss., who lost his home to Hurricane Katrina, has sponsored a bill — the Multiple Peril Insurance Act of 2009– that would permit homeowners the option of purchasing both wind and flood coverage in one NFIP policy. Taylor, who has continued to promote his bill despite opposition from private insurers and some taxpayer and environmental groups, blasted the Obama Administration for its opposition.

“I don’t understand how the Obama administration can bailout AIG and Wall Street, but not pass legislation that protects the American taxpayers and homeowners,” said Taylor, who voted against the federal stimulus package.

Taylor claimed he has tried unsuccessfully for weeks to get a meeting with the Obama Administration about his proposal.

“How can the administration spend so much time with the CEOs that have run their companies into the ground, but not spend so much as five minutes to talk about how the multiple-peril insurance legislation will protect American taxpayers from insurance companies that defraud the federal government to the tune of billions?” he asked.

The Property Casualty Insurers Association of America (PCI), which applauded Napolitano’s position, says private or state residual markets for windstorm coverage already exist for more than 99 percent of all coastal properties in the U.S. Only properties in significant disrepair, representing less than 1 percent of the total, are uninsurable through these programs, according to PCI.

“While this legislation is well-intentioned, it is both unnecessary and fraught with unintended negative consequences, and it ultimately will not help homeowners in need,” said David A. Sampson, PCI’s president and CEO.

Napolitano told the House members that the administration has “serious concerns” not only with the wind coverage proposal but also with another proposal that would create a national flood insurance advocate– which she said would be costly and unnecessary– and one that would mandate that FEMA claims adjusters participate in state-sponsored mediation programs. This proposal raises constitutional concerns because Congress is prohibited from delegating federal executive power to parties outside the executive branch, according to the Cabinet secretary.

Congress has extended the NFIP until Sept. 30, 2009. The House committee is considering various proposals to again extend and also reform the program.

Napolitano supported extending the program to 2014 but also called on Congress to forgive NFIP’s debt from Hurricanes Katrina, Wilma and Rita in 2005, a debt that stood at $19.2 billion as of Jan. 31, 2009.

Napolitano said the NFIP continues to make interest payments but that it is unlikely it will ever be able to retire this debt. She said that had the NFIP not been required to make interest payments on the debt, it would have had sufficient funds to cover all losses from 2005 storms as well as from floods and hurricanes in 2008, without having to borrow the $1.68 billion from the Treasury.

“The administration is asking for debt forgiveness because the size of the current debt creates an unstable financial situation for the NFIP and the subsidized insurance premium structure does not and will not allow the NFIP to collect enough to service the debt or repay it,” she said.

She said the debt forgiveness would have no budget impact because it would be an intra-governmental transfer and that future NFIP borrowing ability should be capped at an amount related to its liabilities.

As for other NFIP reforms, Napolitano wrote that the Obama Administration supports the following provisions contained in House and Senate bills:

• Phasing in actuarial rates for non-residential properties, non-primary residences and properties that suffer repetitive losses.
• Raising the cap on annual rate increases from 10 percent to 15 percent.
• Ongoing flood insurance map review and updating.

Suggested Discussion Topics:
1. Do you agree that wind coverage is readily available in the private market?
2. Do you agree the government should forgive the NFIP debt?

Topics Legislation Flood