Filed Under:Risk Management, Corporate Risk

Will new Flood bill lead to privatization of coverage?

H.R. 2901 may not lead to an immediate flow of policies to the private market, but the bipartisan, industry-supported bill would let insurers experiment

H.R. 2901, if it becomes law, would give mortgage-carrying homeowners the option of purchasing Flood insurance from private carriers. (Photo: iStock)
H.R. 2901, if it becomes law, would give mortgage-carrying homeowners the option of purchasing Flood insurance from private carriers. (Photo: iStock)

With the House Financial Services Committee’s passage of H.R. 2901, the Flood Insurance Market Parity and Modernization Act, there is optimism that the industry-supported measure has a good chance to become law, and perhaps sooner rather than later.

The bill essentially clarifies language in the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) regarding the ability of privately issued Flood insurance to meet lenders’ mandatory purchase requirements. Tom Glassic, vice president of policy and government relations for the Chicago-based Property Casualty Insurers Association of America, says when BW-12 was originally reported out of the House, it specified that lenders shall accept private Flood insurance for mandatory purchases.

Later in the process, language was added defining private Flood insurance. Glassic says it defined private Flood insurance by referencing “some rather specific details that are in an NFIP [National Flood Insurance Program] policy that are completely valid consumer protection items you see in state law on a regular basis; they just didn’t have any place in federal law.” This language, he says, led to confusion among lenders evaluating policies for the purpose of mandatory flood insurance requirements.

H.R. 2901 defines private Flood insurance as “a policy issued by a company licensed, admitted, or otherwise approved by the state.” The bill passed the committee by a 53-0 vote on Wednesday.

The bill could spur interest among surplus lines carriers in part because it specifically clarifies that policies issued by eligible non-admitted insurers meet mandatory Flood insurance purchase requirements, adding in its definition of private Flood insurance “any policy issued by an insurance company eligible as a nonadmitted insurer to provide Flood insurance in the state or jurisdiction where the property to be insured is located.”

Bipartisan effort

Brady Kelley, executive director of the Kansas City, Mo.-based National Association of Surplus Lines Offices (NAPSLO), says, “Based on the level of support that it’s received, I think that means it can reach the House floor for vote by consent agenda,” which means it is seen as a noncontroversial bill can be included with other noncontroversial items and passed by a floor vote. “It’s a relatively noncontroversial and bipartisan process now, from what we understand.”

The bill would then go to the Senate, but based on the bipartisan support the measure has in the House — thanks to education efforts by NAPSLO and other industry trade associations — Kelley likes its chances. He says, optimistically, the bill might become law sometime this year.

“We’ve done a lot of work on this bill,” Kelley continues, noting that NAPSLO has worked for about two years to educate legislators about Flood insurance issues of concern to surplus lines insurers. “It’s pretty exciting to have [the bill pass] through committee.”

What would it mean for the industry? Glassic says not to expect a mad rush of private Flood insurance options, at least not at first. “We’re insurers, we don’t rush in anywhere,” he says.

Related: Flood insurance on the cusp of tremendous change

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Flood insurance policy

H.R. 2901 "gives consumer the option to choose a surplus lines" Flood insurance product, according to Brady Kelley, CEO of the National Association of Surplus Lines Offices. (Photo: iStock)

Encouraging the private market

But there is significant interest in Flood in the private market, and this bill could help encourage that interest. Glassic says the key is making sure hurdles are moved out of the way so the private market can show what it can do, and that’s what H.R. 2901 helps accomplish.

Glassic says that, in insurance, expansion into a market often starts in the surplus lines sector, something NAPSLO is eager to engender. If those carriers establish a good record in that market, admitted carriers may follow.

Kelley notes that, by and large, surplus lines carriers write excess coverages and coverages that do not fit in the National Flood Insurance Program (NFIP). “I don’t see that part changing,” he adds. He said the modeling, experience and innovation the surplus lines brings to the marketplace, though, could lead to interest at the standard market level. “The time that takes and how it evolves, I’m not sure,” he adds.

One of BW-12’s aims, says Kelley, was to facilitate private-market Flood insurance solutions. Language in BW-12, however, created confusion as to whether lenders could accept surplus lines policies to satisfy mandatory purchase requirements. H.R. 2901, Brady says, “preserves our market and gives consumers the option to choose a surplus lines product” if that fits a consumer’s needs.


Some consumer advocates have expressed concerns with H.R. 2901. At a Jan. 13 hearing of the Housing and Insurance Subcommittee of the House's Financial Services Committee, held to discuss getting the private market more involved in Flood insurance, Birny Birnbaum, executive director of the Austin, Texas-based Center for Economic Justice, raised two concerns with the measure. He warned about adverse selection if the market was opened up so private market competes with the NFIP.

Birnbaum also opposed encouraging surplus lines market to write private Flood insurance, as he says surplus lines insurers are not subject to the same extensive oversight as admitted carriers.

J. Robert Hunter, director of insurance for the Washington, D.C.-based Consumer Federation of America, wrote a letter to FSC members March 1 outlining similar complaints. “The legislation would allow surplus lines insurers to enter this market with possible significant market share,” he writes. “However, these insurers are not regulated by the states in any meaningful way.”

A briefing memo on H.R. 2901 circulated by NAPSLO countered this assertion, stating, “Each U.S.-based surplus lines insurance company is licensed in at least one of the 50 states or other U.S. jurisdictions, and must maintain threshold capital and surplus levels. Put another way, a surplus lines insurer is an admitted insurer in at least one state.”

NFIP expiration

Ultimately, this bill is just one step along the way to the overall discussion on Flood insurance. The NFIP is roughly $23 billion in debt, and as the Jan. 13 hearing illustrated, Congress is interested in finding private solutions to reduce the burden on taxpayers.

The NFIP’s current authorization expires in September 2017, and Glassic says the tone set in the H.R. 2901 discussions is a positive sign. He says the bill’s sponsors, Reps. Dennis Ross, R-Fla. and Patrick Murphy D-Fla., made it a point to create a bipartisan solution, and Glassic says he hopes that same tone continues as NFIP discussions move forward.

He noted it is an equally positive sign that discussions about reauthorizing Flood are already happening, and that there is a realization among key legislators that action has to be taken before the September 2017 expiration.

The last time the program’s authorization ran out, the NFIP suffered 17 short-term extensions and four lapses over nearly four years before it was at last reauthorized by BW-12.

Related: House committee OKs private Flood insurance bill

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