Insurers are urging the House of Representatives to pass legislation today that would extend the National Flood Insurance Program (NFIP) for five years. The measure, HR 5114, the “Flood Insurance Reform and Priorities Act of 2010″, sponsored by Representative Maxine Waters (D-Ca.) is expected to be voted upon later this afternoon.
“A long-term reauthorization of the NFIP is of great importance,” said Leigh Ann Pusey, president and CEO of American Insurance Association (AIA). “The recent lapses in the NFIP due to the use of short-term extensions have caused disruptions to homeowners, businesses and hindered real estate closings nationwide. A long-term NFIP reauthorization will bring much-needed stability to the market.”
Since 2008, NFIP has been operating under a series of short-term extensions. This year alone, Congress has allowed the NFIP to lapse three times. During these lapses, new flood insurance policies could not be written, leaving homeowners vulnerable and delaying thousands of real estate transactions per day in flood-prone regions.
“Congress has entered a dangerous cycle of short-term patches for the flood program,” said Ben McKay, senior vice president of federal government relations for the Property Casualty Insurers Association of America (PCI). “We need a viable, long-term solution for the flood insurance program, not quick fixes. We urge the House to support Rep. Waters’ flood insurance bill as an important step for protecting home and business owners.”
But advocates for the Consumer Federation of America (CFA) today say that Congress should instead extend the program for a shorter period in order to evaluate implementing changes to the troubled program, such as ending it or spurring private insurers to underwrite flood risk.
“While this legislation includes necessary revisions to the NFIP, it does not propose the sweeping overhaul needed to fix long-term, structural flaws that are harming consumers and taxpayers,” said J. Robert Hunter, CFA’s director of insurance and former Federal Insurance Administrator and Texas Insurance Commissioner. Hunter ran the NFIP in the 1970s.
The NFIP was intended to end unwise construction in high-risk flood plains throughout the country, while providing affordable coverage for people who really needed it, Hunter said. In return for taxpayer funding for the development of flood risk maps and the provision of subsidized insurance for older buildings, new construction was to be done wisely, and full “actuarial” rates were to be paid for flood coverage.
“The NFIP was brilliantly designed, but it has failed to live up to its promise” Hunter said. “Politics and inept administration have made it a sort of Frankenstein monster, encouraging and even subsidizing unwise construction. Millions of consumers have also been misled into thinking their homes or businesses were not in harm’s way because FEMA has completely mismanaged the process of updating flood insurance maps,” he said.
The NFIP has a budget deficit that now totals $19 billion.
Hunter says there is considerable evidence that shows FEMA has failed to fix the costly “Write Your Own” program, which allows insurers that assume no flood risk to charge high fees for servicing flood policies, especially at times of severe flooding. Hunter claims the WYO program also creates an incentive for insurers to try and pass off wind damage claims that they should pay to the federal government by contending that these damages were really caused by flooding.
HR 5114 contains an amendment, offered by Rep. Gene Taylor (D-MS), that would require “Write Your Own” insurers to eliminate “anti-concurrent causation” language from their homeowners insurance policies. The AIA says that this amendment would prove detrimental to the group’s support for H.R. 5114 if adopted, and would negatively impact “Write Your Own” (WYO) companies and significantly alter the way in which claims are processed by the NFIP.
“Adopting the Taylor amendment would force WYO companies to take a hard look at whether they want to continue participating in the program and could actually result in a reduction in NFIP payouts to policyholders even when they are warranted,” Pusey added.
“AIA strongly supports the bill as passed by the House Financial Services Committee as it improves the program and promotes its fiscal soundness,” concluded Pusey.