The House Financial Services Committee this morning approved a proposal intended to encourage more private insurers to write flood insurance.
The committee approved the Flood Insurance Market Parity and Modernization Act (H.R. 2901), which seeks to clarify that private insurance is to be treated the same as federal flood insurance in cases where homeowners with federally-backed mortgages are required to buy the coverage.
The measure was sponsored by Reps. Dennis Ross (R-Fla) and Patrick Murphy (D-Fla).
Supporters believe the bill will foster more competition in the flood insurance market, providing an alternative for 5 million property owners who rely on the U.S. government’s National Flood Insurance Program (NFIP), which is $23 billion in debt.
Supporters include the insurance industry, state insurance commissioners, as well as taxpayer and environmental groups including Taxpayers for Common Sense and SmarterSafer.
Sen. Dean Heller (R-Nev.) has sponsored a similar measure (S.1679) in the Senate.
The current mandatory purchase requirement does not require that the insurance coverage be provided under the NFIP, however, mortgage lenders have said they are uncertain that private flood coverage satisfies current regulations and have mostly only accepted NFIP policies. Thus the bulk of the business is written with NFIP.
The legislation would define as acceptable a policy issued by a private insurance company that is licensed, admitted, or otherwise approved in the state in which the insured property is located. A policy issued by a non-admitted insurer would also qualify.
Pennsylvania Insurance Commissioner Teresa Miller last month testified in favor of the bill on behalf of the National Association of Insurance Commissioners (NAIC) before the House Subcommittee on Housing and Insurance.
Miller said that encouraging additional carriers into the market will provide consumers with additional flood insurance products.
“One of the obstacles that we’ve seen is that many lenders are reluctant to issue mortgages for homes with private flood insurance because they are not sure the coverage meets the requirements of the federal government,” the commissioner testified. “H.R. 2901 would remove that obstacle by requiring lenders to accept private flood insurance if it meets certain coverage criteria and is subject to supervision by state insurance regulators.”
She said that Pennsylvania is already seeing examples of private carriers offering comparable coverage at a lower cost than the NFIP.
“We have heard stories of consumers getting substantial savings from private flood insurance as opposed to the NFIP product,” said Miller. “In one particular case, a consumer’s annual premium under NFIP was $7,500, but a private plan offered similar coverage for $1,415. In another instance, the federal NFIP premium was $6,000, while private insurance was just $900.”
Insurance agents have also backed the Ross-Murphy legislation. According to the Independent Insurance Agents and Brokers of America (Big “I”), because mortgage lenders are unsure whether private market alternatives satisfy the “mandatory purchase” requirement, they are either requiring the private policy to look nearly identical to an NFIP policy or, in many cases, simply not accepting private policies.
The Big “I” has expressed concern that federal banking regulators could end up determining what is considered an acceptable private insurance policy. The group has told lawmakers that said agents support the Ross-Murphy legislation as a way to “let state insurance regulators determine acceptable flood insurance policies instead of federal banking regulators or the lenders themselves.”
Five federal banking and credit union regulatory agencies have signed off on a joint rule that modifies regulations for loans secured by properties located in special flood hazard areas. However the agencies have not yet addressed issues surrounding private flood insurance.
According to the environmental and taxpayer collation, SmarterSafer.org, if private insurers can offer flood coverage, “consumers for the first time would be able to price shop among various policies, and could potentially choose different coverage including higher coverage limits, varying deductibles, and greater insurance protection.”
In addition to lower rates, private insurers are likely to introduce new methods of calculating risks and promote mitigation, according to SmarterSafer.org.
To the extent that private insurance carriers currently provide flood coverage, they generally limit their offerings to commercial flood policies and excess homeowners flood coverage above the maximum $350,000 of building and contents coverage provided by the NFIP.
According to various experts and studies, the major obstacle to private sector flood insurance has not been regulation per se but rather the inability of private carriers to compete with the subsidized premiums offered by the NFIP, prices that have contributed to the NFIP amassing a $23 billion deficit.
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