Congress is headed for a “major showdown” over the flood insurance program, according to an insurance broker lobbyist who notes that the program expires July 31, right in the middle of hurricane season.
That also happens to be the very day that Congress goes on recess.
Joel Wood, senior vice president, the Council of Insurance Agents and Brokers, told RIMS annual conference attendees that while there is pressure on Congress to not only renew but also reform the flood program, there is no guarantee Congress will do either or get much else done.
Wood was joined by James McIntyre, an attorney with McIntyre and Lemon who represents RIMS on Capitol Hill, at the RIMS Annual Conference to provide an update on insurance politics in the nation’s capital.
Although there are issues the industry would like to see addressed, including flood insurance, cyber security, federal disabilities act reform, healthcare and terrorism reinsurance, Wood and McIntyre expressed skepticism that Congress will accomplish much before the midterm elections in November.
CIAB is also waiting for the Trump Administration to clarify whether its insurance brokerage members are eligible for major tax relief under the Tax Cuts and Jobs Act (TCJA), the President’s signature legislative achievement.
Dysfunction Over Flood Insurance
The way Congress has been kicking the flood insurance can down the road for years “symbolizes the dysfunction in Washington,” according to CIAB’s Wood.
Congress has simply been attaching the National Flood Insurance Program (NFIP) reauthorization to continuing resolutions for appropriations for several years, rather than dealing with the NFIP and reforms.
“We have had periods in the past where the program has expired for a week or few days, but Congress has always been in session then, so if some major event were to intervene, they could make it retroactive. But,” he warned, “Congress gets out of town on July 31.”
Rep. Jeb Hensarling, R.-Texas, chair of the House Financial Services committee, has been trying to “box in the Senate” to force consideration of a package of flood reforms. House leadership has finally agreed to disengage the NFIP from the appropriations process.
Hensarling is someone who has long advocated for actuarially sound rates in the NFIP. The key committee chairman has succeeded several times in getting the House to pass bipartisan reforms that would move the NFIP toward actuarial rates and reduced subsidies, but the Senate has not been willing to engage on the issue.
Hensarling “hasn’t been successful in jamming the Senate on much of anything over the last five years,” according to Wood, so the prospects for key flood reforms including private market incentives remain dim. They remain dim even within the House GOP ranks because of the positions of two prominent players.
In Wood’s analysis, one difference between regular dysfunction in Congress and the dysfunction surrounding flood insurance is that flood insurance breaks along coastal versus non-coastal, rather than partisan lines. That divide sets up what Wood sees as a pending showdown pitting Hensarling, a leader of a key committee, against Rep. Steve Scalise, R-Louisiana, a member of the GOP House leadership as majority whip, who Wood calls “the guy to watch.”
Wood is skeptical of anything happening because Scalise represents part of Louisiana including New Orleans and Metairie that are highly susceptible to flooding and whose residents would pay a lot more for flood insurance under actuarially sound rates than they now pay. “Half his district is under sea level,” said Wood, adding that when Hensarling talks about “actuarial soundness,” in a district like Scalise’s, “we’re not just talking about mega mansions on the Florida coast. For a $75,000 ranch house in Metairie, actuarial soundness in the NFIP might mean they have to pay $20,000.”
“This is going to be a major showdown at the end of July,” Wood said. Flood insurance remains “the biggest remaining issue” in property/casualty with a chance of being addressed before the midterm elections.
While the July 31 deadline could see Congress heading home in the middle of hurricane season without having acted at all, McIntyre thinks the deadline could also turn out to be a positive force because it “creates leverage” to get politicians to do something.
“There’s a lot of pressure on Congress to reauthorize this program,” said McIntyre, citing not only lobbying by insurance and risk managers, but also by builders and lenders.
McIntyre believes Congress will renew the NFIP but agrees with Wood that any real reforms will likely be placed on a back burner again until after midterm elections.
Wood said RIMS has been encouraging the Trump Administration in the meantime to use its regulatory flexibility to encourage more private flood insurance in the excess and surplus insurance markets.
Tax Relief Uncertainty
Congress did manage to pass tax reform, a Republican priority. But Wood said that because of the “tortuous behind-closed doors way it was drafted,” there remains uncertainty about the tax breaks for two-thirds of CIAB’s member-firms that are pass-through organizations including S-Corps, LLCs and partnerships. According to Wood, while some provisions of the tax law indicate tax relief is not available to services firms, other provisions suggest otherwise. Businesses are awaiting clarification from the Treasury department, which Wood said “has to make its way through an incredible thicket” to determine which businesses are entitled to relief and how much.
“We will be seeing in a couple of weeks if they are going to put their finger on the scale toward granting the most possible 20 percent pass-through tax relief for the most possible number of entities. So that’s a big, big issue out there,” Wood said.
While lower taxes should put downward pressure on insurance rates, the law also contains taxes targeting reinsurance ceded to a foreign reinsurer that some worry could raise reinsurance costs, according to Wood.
RIMS opposed the reinsurance provisions, which have been pushed for years, and RIMS is concerned they could affect availability and pricing of reinsurance. McIntyre suggested proponents of the provisions succeeded due in part to a climate of “political animosity towards foreign companies” in Washington. “The jury’s still out in terms of what impact it’s going to have,” McIntyre said, although he said risk managers he has spoken with have not yet seen any pricing effect on reinsurance contracts.
The two experts cited cyber security as another legislative priority for their members, albeit one Congress is unlikely to address for a while.
“It’s important for the nation,” McIntyre said. All states now have a cyber statute but “it’s a patchwork quilt. If you do business in a number of states, then you have to comply with each state’s laws, and that’s a real hassle.”
Risk managers would like to see a national standard for reporting and some uniformity in timelines and requirements for corporations when there are data breaches.
Wood said New York’s cyber regulations have almost become the “de facto” national standard in the absence of a federal law, while the National Association of Insurance Commissioners (NAIC) has a model law that some states may adopt.
The higher standards under the European Union’s new General Data Protection Regulation (GDPR) that become effective May 25 of this year could also be an option for some businesses.
“When you look at how fragmented all of this is and what a compliance nightmare there is, if you are looking to those GDPR standards, you’re pretty much going to be in compliance with everything that is underneath it,” Wood said.
However, the worry is that even the EU standards represent “just a floor” in terms of dealing with cyber security, he said.
While risk managers may be hoping for a federal standard from Congress, Wood doesn’t see that happening in today’s Washington. This is another issue that doesn’t necessarily break down along Republican versus Democratic lines. Even the insurance industry can’t agree on cyber regulation.
There is one thing that could motivate lawmakers to move a bill forward: another “significant, national headline-grabbing” data breach. “After the next Equifax, they’re going to move on it,” he predicted. A federal cyber bill put together by Rep. Blaine Luetkemeyer, R- Missouri, could then move to the “rocket docket.”
McIntyre noted that state attorneys general have opposed Luetkemeyer’s bill as an infringement on state rights.
“It’s not easy to get things done even when you’ve got bipartisan support,” McIntyre added.
Wood predicted that “there is not going to be a uniform standard” for data breaches, noting that while the insurance industry can be selective about when it supports state rights, it does when it comes to tort reform and regulation of insurance, even cyber. He harkened back to the industry’s own debate over an optional federal charter and the fears that federal intervention would not replace state rules, but would result in an additional layer of regulation (like the Dodd-Frank Act) on top of existing state regulations.
Wood warned that a dismantling of the individual health insurance market and the Affordable Care Act (ACA) could have implications for the employer-based market, where some of CIAB’s members operate. This could include encouraging a wave of support for single payor healthcare.
Citing difficulties in individual markets, the ending of certain subsidies, states moving away from the ACA’s mandated benefits, and Republican efforts to replace employer-based insurance with a consumer-based model, he cautioned: “The more we see that market [individual] faltering, the more stress there will be on employer health market.” Too many stakeholders in the health market are battling each other rather than paying attention to the threat of the single payor movement, he said.
Taking stock of the current political climate in Washington, Wood sees Washington as a polarized environment where too many elected representatives let politics get in the way of normal civil life.
He said in the Reagan era when he first came onto the Washington scene, right wing Republicans disagreed with left wing Democrats, but they liked each other, and their families lived near one another and they socialized together. “You never see that today,” he said.
He also blamed a lack of expertise and experience among today’s Congressional members, 70 percent of whom only know an omnibus approach to the federal budget and have never been through a normal appropriations process that involves more than a dozen separate funding bills.
McIntyre agrees the city is polarized and blames some of it on gerrymandering, which has created electorally safe districts that allow politicians to stick to their extreme right or left views because they do not need to worry about re-election.
Wood thinks Democrats will take control of the House in the midterm elections, while McIntyre thinks they will fall short.
Wood said the “elephant in the room” is President Trump. He said Republicans feel vulnerable because of Trump’s low poll numbers.
Wood said House Speaker Paul Ryan’s retirement reflects the full repositioning of Republicanism from “supply side” policies to “Trumpism.” Quoting a Virginia representative, Wood added: “The Republican base has moved from the country club to the country.”
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