Flood Insurance Program Closed; No Policies Until Senate Votes

By Andrew G. Simpson
March 1, 2010

The Senate last week failed to vote on bills to extend several federal programs including jobless benefits, COBRA subsidies, transportation project funding and flood insurance before these programs expired Feb. 28.

A single senator, Jim Bunning, R-Ky., has derailed final approval of the programs' extensions over concerns about how to pay for them, especially the extension of unemployment benefits.

The result is that the programs could be in limbo for about a week while the Senate finds a way to get the job done. The National Flood Insurance Program (NFIP) will not be able to issue new policies, increase coverage or approve renewal policies until Congress approves reauthorization.

Bunning maintains that Congress has not paid for these extensions through any new funding or cuts as is required. Bunning, who is not running for re-election, said he supports extension of the benefits and programs including flood insurance but feels funding should be clear.

"The only difference I have, and some of my good friends from the other side of the aisle, is that I believe we should pay for it. There is a right over the last three years of the Democratically controlled Congress. We have run up $5 trillion in debt. There has to be a time to stop that," Bunning said on the Senate floor.

Senate Majority Leader Harry Reid vowed that the measures would pass sometime this week but criticized the Republican's tactics in delaying the approval of the programs.

"We talk a lot about Senate procedure in our debates, and that's often appropriate. But it's also often complex," Reid said. "The catch here is that these benefits do not need to expire. We have the ability right now to extend them for just a short time until we work out a longer-term solution. It is irresponsible not to. It is immoral."

If approved, the current bill would only extend the NFIP for a month, until March 28. There have been several short-term extensions within the past year.

The House has already approved the bills.

Guidelines for Carriers, Agents

The Federal Emergency Management Association (FEMA), which manages the flood program, issued a bulletin on Feb. 27 with guidelines for insurers and agents participating in the program in the event of a lapse. The agency did say that "any hiatus period should be brief, and most of the nearly 5.6 million flood insurance policyholders nationwide will not be affected."

New policies for which insurers received payment on or before midnight of Feb. 28 will be issued and will become effective after the last day of effective authorization, regardless of the policy effective dates.

The NFIP recommends that companies writing flood insurance hold any premiums, renewals or added coverage endorsements received on or after Feb. 28.

Eventual reauthorization will likely be granted retroactively, and insurers can issue policies effective as of the date they received payments, according to FEMA.

Policies with a 30-day waiting period would become effective when both the 30-day waiting period has ended and Congress has reauthorized the NFIP.

Insurance agents criticized the failure to extend the flood program.

"While this lapse in the flood insurance program will likely be corrected retroactively this week in the Senate, it is disappointing," said Mike Becker, federal affairs director for the Professional Insurance Agents. "Insurance agents and their clients who need flood insurance are now at a disadvantage. Many real estate transactions require flood insurance, and the NFIP is the sole source for more than 95 percent of the flood coverage nationwide. We could see real estate closings delayed until this is fixed."

Insurance companies also expressed concern.

"Members of Congress have exposed millions of Americans to costly liabilities by allowing the program to lapse again," said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies. "Providing protection from flood losses should be more of a priority for the government. After one of the stormiest winters on record, and with hurricane season fast approaching, it is unfortunate that Congress would fail to act on this issue and put millions of Americans' financial security at risk."

Grande said this episode "should make it clear that short-term extensions, which can be blocked by any Senator or congressional caucus, are untenable."