The National Association of Professional Insurance Agents has described 2010 as a year of "stop-and-starts" for the critical National Flood Insurance Program.
One serious attempt to enact comprehensive NFIP reform legislation passed the House in July but went nowhere in the Senate. Then, on September 23, Congress passed legislation extending the NFIP until Sept. 30, 2011.
The one-year extension meant that Congress averted another lapse in the flood insurance program. There were four program lapses in the past year as Congress approved extensions of only months or weeks and then failed repeatedly to act in time to avert interruptions in the program.
This stop-and-start approach to the flood program played havoc with real estate markets in the midst of a recession, PIA officials noted. It also prompted the nation's largest administrator of NFIP policies, State Farm, to announce it would stop administering federal flood insurance policies, PIA officials noted.
"The fallout from years of Congress treating the nation's flood insurance program as a political football increased significantly in 2010," they added.
"The NFIP has become the victim of an increasingly political atmosphere in recent months and years," said Rita Hollada, PIA National's representative to the Flood Insurance Producers National Committee (FIPNC) and a former FIPNC chair.
"Repeated lapses in the program and its manipulation by Congress affect the certainty of the NFIP as a viable insurance program whose sole purpose is to protect and fund recovery for flood damage," she said.
But, according to industry officials and an industry consultant, the chances that the National Flood Insurance Program will be reauthorized for a long period by the next Congress have risen considerably through Republican takeover of the House.
They point to the defeat--with strong industry funding--of Reps. Gene Taylor, D-Miss., and Ron Klein, D-Fla., both strong advocates of NFIP changes, which the industry believed would reduce profitability and viewed as inappropriate government intrusion into the private market.
Rep. Taylor had pushed for the Multi-Peril Insurance Act, H.R. 1264, which would have added wind coverage to the NFIP, while Rep. Klein had been the lead sponsor of the Homeowners' Defense Act, H.R. 2555, which would have established a national catastrophe consortium and allowed the U.S. Treasury to make loans to state catastrophe funds.
In the November elections, Reps. Taylor and Klein lost their seats in Congress to Republicans Steven Palazzo and Alan West, respectively.
In the days just after the polls closed, Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies in Washington, said the defeat of Rep. Taylor meant "a renewed opportunity at meaningful NFIP reform without the looming bad policy proposal of wind inclusion."
Rep. Klein's ouster, along with the fact that at least eight new members of the Florida delegation are coming to Washington, means that "the 'beach house bailout' idea can finally be put to rest and we can begin a conversation about creating a more sound solution based on market realities," Mr. Grande added.
"Voters made it clear: They don't want--or need--a government takeover of property insurance markets," said Eli Lehrer, national director of Heartland's Center on Finance, Insurance and Real Estate. "Both Rep. Taylor's district and Rep. Klein's district are places where hurricanes are major problems," he said.
"Both men waged passionate efforts for their bills," Mr. Lehrer said. "But voters rejected them. This is a big win for taxpayers, the environment and common sense."
Rep. Taylor had also pushed for language in any NFIP renewal bill that would prohibit insurers involved with the NFIP from using anti-concurrent causation language in their own homeowners policies to exclude coverage of wind damage solely because flooding also contributed to the loss.
In addition, he also supported language that would preempt state law by imposing added regulation and oversight of industry claims practices where damage is caused by both wind and flooding.
As year-end approaches, privatization proposals are floating around.
The Reinsurance Association of America and the Association of Bermuda Insurers and Reinsurers discussed privatization concepts at a November forum sponsored by the Federal Emergency Management Agency, which manages the NFIP.
RAA and ABIR officials suggested a number of options that could be considered for privatizing all or part of the NFIP.
They include having the private insurance and reinsurance sector assume flood risk over time and eliminating or greatly reducing the federal role for providing insurance. This option is feasible if insurers could be encouraged to underwrite flood policies as part of standard homeowners policies with actuarially sound, risk-based rates that reflect the true cost of capital.
They also suggested that insurers should be provided incentives to assume NFIP policies and that private sector flood coverage should be exempt from state rate regulation, or alternatively, federal law should authorize competitive use-and-file rating rules for federally determined flood risk coverage.
But Blain Rethmeier, a spokesperson for the American Insurance Association, cautioned that "privatization is only one of a number of concepts that needs to be evaluated."
"Debating and reforming the NFIP is an ongoing process that began a year ago and still has a ways to go," he said.
