House Passes NFIP Bill With Potentially Historic Shift Toward Privatization

Whether the insurance industry will have certainty about the National Flood Insurance Program (NFIP) is now in the hands of the U.S. Senate.

The House on July 12 passed legislation that would reauthorize the NFIP until Sept. 30, 2016. But whether Congress can act on a long-term reauthorization before the current program’s extension expires Sept. 30 remains unclear.

The final House bill contains one potential historic shift in the program: some movement toward privatization, at least through reinsurance.

Regarding these privatization efforts, the Federal Emergency Management Agency (FEMA) is explicitly authorized under the measure to “carry out initiatives to determine the capacity of private insurers, reinsurers and financial markets to assume a portion of the flood-risk exposure in the United States.”

The bill “clarifies” the power of the FEMA administrator to utilize private-market reinsurance capacity to minimize the likelihood that the program would need to borrow additional funds from the Treasury.

Some interesting changes were made in the bill through amendments on the House floor. Here are some critical ones (and some rejected ones):

A key amendment approved by the full House would require FEMA to find write-your-own companies to take over 832,000 flood policies formerly underwritten by State Farm and its 17,000 agents.

The amendment requires FEMA to reduce the number of flood-insurance policies that are directly managed by it to not more than 10 percent of the total number of flood-insurance policies in force. It would also require FEMA to refuse to accept future transfers of policies to the NFIP Direct program. 

The House also added a provision requiring the NFIP to create a reserve fund to handle catastrophic losses.

The House rejected an amendment by Rep. Candace Miller, R-Mich., that would have terminated the NFIP as of Jan. 1 and allowed states to form interstate compacts to provide flood insurance.

Also rejected was an amendment by Miller that would terminate current spending on television and radio advertising that is used to promote the NFIP in all 50 states. The vote was 238-186.

Another amendment that was defeated would have directed the Government Accountability Office to determine whether an “all perils” insurance-policy market should be created; that is, one that would cover wind and water, as well as cover other claims, for example, defective wall board. 

Also defeated was an effort to remove a provision added by the House Financial Services Committee when it took up the bill in May that added coverage for business-interruption and cost-of-living expenses.

NAIC Drops Support For Agent MLR Exemption

The National Association of Insurance Commissioners (NAIC) on July 12 decided not to support a recommendation of a special task force that would have put the NAIC on record as supporting House legislation exempting insurance agents from the medical-loss provision of the healthcare-reform law.

Officially, the NAIC executive committee said “it chose not to take further action on the Task Force’s recommendation, but to continue to work with [the U.S. Dept. of Health & Human Services] (HHS) on other possible alternatives.” 

We checked in with various industry leaders to get their take on the NAIC decision.

Janet Trautwein, CEO of the National Association of Health Underwriters (NAHU), says NAHU presented the NAIC and HHS with a 120-page report showing the “devastating impact” the provision is having on health agents.

Florida Commissioner Kevin McCarty, who headed the NAIC task force, says he has not dropped support for the House bill, but is also pursuing other alternatives that he hopes might bring quicker relief to the agent community.

Ethan Rome, executive director of Health Care for America Now!, a consumer-oriented group, calls the decision a “victory for consumers and businesses.”

Rome adds the legislation, sponsored by Rep. Mike Rogers, R-Mich., “asks members of Congress to pick winners and losers and pits brokers against consumers and all small businesses...The fact is that the bill will take $1.3 billion in rebates from consumers and give it to the insurance companies without any guarantees that it will solve any of the problems that brokers have raised.” 

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