Filed Under:Markets, Commercial Lines

NFIP Extension Bill Advances In House

Sandbags are lined up in a street of a south Fargo, ND, neighborhood along the Red River, Tuesday, April 5, 2011. The city is bracing for yet another flood. (AP Photo/Dave Kolpack)
Sandbags are lined up in a street of a south Fargo, ND, neighborhood along the Red River, Tuesday, April 5, 2011. The city is bracing for yet another flood. (AP Photo/Dave Kolpack)

NU Online News Service, April 7, 2:21 p.m. EDT

A panel of the House Financial Services Committee late Wednesday passed legislation that would keep the National Flood Insurance Program in operation until Sept. 2016.

Insurance industry trade groups voiced support for the subcommittee action, with the National Association of Mutual Insurance Companies (NAMIC) asking the full committee to “act swiftly” to report the bill to the House floor.

The action by the House Subcommittee on Insurance, Housing and Community Opportunity sets up likely full committee action sometime in May, according to officials at the American Insurance Association (AIA).

The bill is H.R. 1309, the Flood Insurance Reform Act of 2011.

The NFIP has received temporary reauthorization eight times since the original reauthorization ended Sept. 30, 2008.

Ben McKay, senior vice president of federal government relations for the Property Casualty Insurers Association of America (PCI) explains, “Long-term reauthorization of the NFIP is critical as the program will expire again on September 30 absent congressional action.”

Leigh Ann Pusey, AIA president and CEO, says in a letter to the subcommittee, “Recent lapses in the NFIP due to the use of short-term extensions have caused disruptions to homeowners and businesses and hindered real estate closings nationwide.”

Amongst other elements, the legislation includes provisions designed to phase in market rates and reduce instances where a homeowner submits multiple claims.

To assuage concerns by homeowners brought into the program through remapping, the legislation contains a provision that allows the Federal Emergency Management Agency, which administers the program, to suspend the mandatory purchase requirement for up to three years if such relief is sought by a particular community.

It also adds optional coverage for additional living expenses and business interruption if FEMA charges full-risk rates for such coverage.

Moreover, under the legislation, FEMA would be allowed to offer policyholders the option of paying their premiums for one-year policies in installments.

However, FEMA would be allowed to bar future coverage, or impose higher rates or surcharges, if property owners attempt to limit their coverage by paying premiums only during storm season under another provision of the bill.

As a new wrinkle, the bill mandates that both FEMA and Government Accountability Office assess a “broad range” of options for privatization of the program “over time,” and to report back within a year.

Earlier this month, FEMA Administrator Craig Fugate raised concerns about the NFIP, stating that the cost of subsidies in the current program—given mainly to ease costs for people brought into the program under recently updated flood maps—is reducing annual premium income by one-third. He said these subsidies make it unlikely that the NFIP will ever be able to pay off its debts.

Jimi Grande, NAMIC senior vice president of federal and political affairs, explains, “For the NFIP to survive, the prices for flood insurance must reflect the actual costs of flood risk for a property.”

He says the bill will provide that transparency. In addition, he says the Technical Mapping Advisory Council created by the legislation “will give communities a voice in the flood mapping process, fostering a better understanding of what flood maps represent and how they are made.”

Mr. Grande also notes that the bill calls for mitigation incentives for local enforcement of building codes, an issue NAMIC has long advocated for to Congress.

Eli Lehrer, vice president of the Washington office of the Heartland Institute and a consultant on flood an catastrophe issues, says the bill reduces subsidies substantially, and moves more properties toward actuarial rates, “a significant improvement, a big step in the right direction.”

But he says that although the bill contains some real improvements to mapping and rating, “I'm really concerned about the provisions that add business interruption coverage and other new benefits while temporarily suspending mandatory purchase.

“The bill good but it's far from perfect,” he says.

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