With the House Financial Services Committee's passage ofH.R. 2901, the Flood Insurance Market Parityand Modernization Act, there is optimism that theindustry-supported measure has a good chance to become law, andperhaps 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 insuranceto meet lenders' mandatory purchase requirements. Tom Glassic, vicepresident of policy and government relations for the Chicago-basedProperty CasualtyInsurers Association of America, says when BW-12 was originallyreported out of the House, it specified that lenders shall acceptprivate Flood insurance for mandatory purchases.

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

H.R. 2901 defines private Flood insurance as "a policy issued bya 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 inpart because it specifically clarifies that policies issued byeligible non-admitted insurers meet mandatory Flood insurancepurchase requirements, adding in its definition of private Floodinsurance "any policy issued by an insurance company eligible as anonadmitted insurer to provide Flood insurance in the state orjurisdiction 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 consentagenda," which means it is seen as a noncontroversial bill can beincluded with other noncontroversial items and passed by a floorvote. "It's a relatively noncontroversial and bipartisan processnow, from what we understand."

The bill would then go to the Senate, but based on thebipartisan support the measure has in the House — thanks toeducation efforts by NAPSLO and other industry trade associations —Kelley likes its chances. He says, optimistically, the bill mightbecome 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 educatelegislators about Flood insurance issues of concern to surpluslines insurers. "It's pretty exciting to have [the bill pass]through committee."

What would it mean for the industry? Glassic says not to expecta mad rush of private Flood insurance options, at least not atfirst. "We're insurers, we don't rush in anywhere," he says.

Related: Flood insurance on the cusp of tremendouschange

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

Encouraging the private market

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

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

Kelley notes that, by and large, surplus lines carriers writeexcess coverages and coverages that do not fit in the NationalFlood Insurance Program (NFIP). "I don't see that partchanging," he adds. He said the modeling, experience and innovationthe surplus lines brings to the marketplace, though, could lead tointerest at the standard market level. "The time that takes and howit evolves, I'm not sure," he adds.

One of BW-12's aims, says Kelley, was to facilitateprivate-market Flood insurance solutions. Language in BW-12,however, created confusion as to whether lenders could acceptsurplus lines policies to satisfy mandatory purchase requirements.H.R. 2901, Brady says, "preserves our market and gives consumersthe option to choose a surplus lines product" if that fits aconsumer's needs.

Opposition

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

Birnbaum also opposed encouraging surplus lines market to writeprivate Flood insurance, as he says surplus lines insurers are notsubject 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 FSCmembers March 1 outlining similar complaints. "The legislationwould allow surplus lines insurers to enter this market withpossible significant market share," he writes. "However, theseinsurers are not regulated by the states in any meaningfulway."

A briefing memo on H.R. 2901 circulated by NAPSLO countered thisassertion, stating, "Each U.S.-based surplus lines insurancecompany is licensed in at least one of the 50 states or other U.S.jurisdictions, and must maintain threshold capital and surpluslevels. Put another way, a surplus lines insurer is an admittedinsurer in at least one state."

NFIP expiration

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

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

He noted it is an equally positive sign that discussions aboutreauthorizing Flood are already happening, and that there is arealization among key legislators that action has to be takenbefore the September 2017 expiration.

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

Related: House committee OKs private Flood insurancebill

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