From the February 2012 issue of American Agent & Broker •Subscribe!

Congress Stuck on NFIP Band Aids

Flood insurance program extended through May, but long-term reauthorization is still uncertain

The National Flood Insurance Program (NFIP) has breathing space until May 31 through one of President Barack Obama’s last actions of 2011 on Dec. 23.

But it remains unclear whether the latest extension means that Congress will have enough time to craft legislation that will provide the industry’s priority, reauthorization of the program until Sept. 30, 2016.

A number of issues stand in the way of legislation providing a long-time reauthorization of the program, including pure politics, specific concerns or just lack of time.

The Independent Insurance Agents and Brokers of America (IIABA) has established a long-term extension of the program as one of its priorities for 2012.

"The IIABA strongly supports efforts to reform and extend the NFIP," said Charles Symington, IIABA senior vice president of government affairs.

In particular, he said, its priorities are ensuring that the program receives a 5-year extension and that the program is put on sound financial footing by making the rates more actuarially sound.

"Both the House and Senate bills achieve these goals, and we implore the Senate leadership to schedule floor time for its Flood Insurance Reform and Modernization legislation as soon as possible so that the House and Senate can work out the slight differences between their bills and finally get this effort across the finish line," Symington said.

Related: Read more about NFIP reforms form Arthur D. Postal in the article "With an NFIP Extension to May Complete, Industry Eyes Long-Term Reforms."

Obama signed H.R. 2055, the "Consolidated Appropriations Act," (known as the mini-bus), around noon Dec. 23.

The bill had been passed by Congress the prior Friday, but delays in getting it printed by House staff officials had prompted a series of short-term extensions that would have allowed the program to lapse at midnight Friday, Dec. 23, without presidential action.

The latest extension makes 15 last-minute NFIP reauthorizations since 2002, and the program was allowed to lapse for four extended periods.

According to officials at the Property Casualty Insurers Assn. of America (PCI), NFIP lapsed four times in 2010 and flood coverage could not be purchased or renewed for a total of 53 days.

Based on what happened in Congress before the December recess, industry lobbyists said that the Senate is unwilling to sign off on the House version of reform legislation that would extend the NFIP until Sept. 30, 2016, and want some changes made to the House bill.

That became evident when the Senate rejected House efforts to include the House bill, H.R. 1309, the "Flood Insurance Reform Act of 2011," in legislation that would have been part of a deal to pay for a tax cut, stopping a 27 percent pay cut to doctors who accept Medicare patients, and extending unemployment benefits.

The House finally agreed to Senate legislation Dec. 23 that extended those programs for two months.

The House and the Senate returned to work Tuesday, Jan. 17.

But there are several issues standing in the way of prompt action in the Senate on its bill, which passed the Senate Banking Committee in early September:

  1. The debt limit had to be extended again, and an extended debate on that issue took place in January.
  2. The issue that delayed House action was a tax cut and the need to ensure that payments to doctors under the Medicare program were not cut more than 27 percent, which would have happened had the House not acquiesced to a two-month extension of those two tax issues contained in a bill that passed the Senate.

Besides that, there are specific concerns with provisions in the House bill, plus provisions that individual senators want included in any final legislation, said an anonymous lobbying source

Among the provisions in both bills is one that would allow the Federal Emergency Management Agency (FEMA), which administers NFIP, to buy private reinsurance to reduce the government’s exposure to additional losses.

The bills also tighten subsidies provided under the current NFIP authorization legislation.

A key issue for insurance agents is a provision in the House bill that would require FEMA to return to the private sector.

Related: Read the article "Weathering the Storm" by Jeffrey R. Wyrsch.

Supporters of such an amendment backed off from asking that it be included in the Senate version.

And lack of Senate support for the so-called "depopulation" amendment would likely mean it will not survive a House-Senate conference that would reconcile bills that are relatively similar, said Eli Lehrer, director at the Heartland Institute, which consults with the insurance industry on catastrophe issues.

This provision requires FEMA to return to the private sector more than 800,000 flood insurance policies currently administered by State Farm that are being turned over to the agency to manage.

The amendment in question would require FEMA to reduce the number of flood insurance policies that are directly managed by the agency to no more than 10 percent of the total number of flood insurance policies in force.

It also requires FEMA to refuse to accept future transfers of policies to the NFIP Direct program.

State Farm is turning these policies back over to the agency to manage out of frustration over the uncertainty created by lapses in the program caused by lack of congressional action. The process ended last October.

At the same time, a "handful of policies" will be transferred later, most likely because claim is pending under the earlier write your own arrangement, a State Farm officials said.

Under this arrangement, State Farm’s 17,000 agents will still sell and service flood policies working with NFIP Direct.

Two other provisions also are holding up Senate passage of its legislation, a key development that would set the stage for talks with House officials on blending the two bills, then getting them passed again by both Houses and signed by President Obama.

One is a provision in the Senate bill that would require homeowners and businesses to purchase federal flood insurance even though their properties are protected by levees.

A letter from the 13 senators contends that mandatory purchase requirement for those protected by healthy flood control infrastructure inequitably targets only particular types of flood risk.

"Areas protected by properly constructed and maintained levees, dams, and other flood control infrastructure should not be arbitrarily declared areas of special flood hazard," the letter states.

But outside observers believe the current approach, to have homes protected by levees under NFIP is appropriate.

Ray Lehmann, a vice president of the Heartland Institute, Washington, D.C., said levees and other mitigation structures sometimes fail, and it is irresponsible public policy not to recognize this reality.

Related; Read the article by Arthur D. Postal "Senators: Areas Protected By Levees, Dams Should Not Need Flood Coverage."

Another controversial provision is the Consumer Option for an Alternative System To Allocate Losses Act of 2011, or COASTAL Act, S. 1091, introduced by Sen. Roger Wicker ( R-Miss.).

It would deal with the controversial "wind-versus-water" issue by creating a "standardized loss allocation" system to distribute losses between the NFIP and private or residual-market-provided wind insurance following the total loss of any property that carries both flood and wind insurance.

The leadership of the Senate Banking Committee supports allowing an amendment to be offered on the Senate floor that would add the provision to the Senate bill.

But it is unclear how much support the provision has, and whether opponents will demand that it be weakened before allowing a vote.

Another issue being raised is about provisions in both bills that would allow FEMA to provide consumers with greater flexibility in paying their bills.

The greatest concern is with the Senate bill, which would give homeowners the option of paying "either annually or in more frequent installments."

Officials of National Flood Services, which serves as the processor for 54 of the 83 write-your-own companies, stated in a letter to the Senate that the provision "would be a disaster."

The House version is "open-ended," providing FEMA the flexibility to allow homeowners to pay annually, quarterly or monthly, "whatever FEMA wants," the officials said.

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