In July 2007, Rep. Maxine Waters (DCalif.) introduced H.R. 3121, The Flood Insurance Reform and Modernization Act of 2007 in the House of Representatives. The bill, which would have authorized NFIP through 2013, passed the Financial Services Committee and the full House in just two months and was sent to the Senate for approval. When the bill arrived in the upper chamber, significant differences began to surface.

Among the most controversial proposals included in the House version was its provision allowing NFIP to begin offering windstorm coverage in both personal and commercial multiperil policies. The wind provision was championed by Rep. Gene Taylor (D-Miss.), whose district, which includes Gulfport, Miss., has suffered from hurricanes in recent years.

The Senate took up the bill in May of this year, deleting the wind provision and forgiving more than $17.5 billion that NFIP borrowed in the wake of the devastating 2005 hurricane season. And there are other differences, too. In an attempt to phase out premium subsidies, the Senate bill would allow premium increases as high as 25 percent annually, while the House bill would cap hikes at 15 percent.

Work on the bill slowly ground to a halt as the financial crisis began to unfold. A conference committee was never established, which is needed to work out the differences between the House and Senate before it can be sent to the White House.

As Congress revisits NFIP reform in early 2009, the National Assn. of Professional Insurance Agents will reiterate its positions:

Do not expand the program to cover wind perils. Currently, the NFIP only covers flood risks, while wind insurance is covered under homeowners' insurance and statewide wind pools. Although the wind-versus-water argument often accompanies policy claims after a storm, allowing policyholders to purchase both flood and wind policies through the NFIP would inadvertently create more problems than solutions. The logistical implications of having some policyholders' flood and wind policies combined in the NFIP, some still separated between the NFIP and wind pools, and still others having only one coverage or the other, creates tremendous unintended consequences. This uncertainty as to whether losses caused by wind should be covered by a policyholder's property policy, a state's wind pool, or the NFIP would lead to an increase in coverage disputes and related litigation, creating additional difficulties for homeowners suffering wind losses.

Forgive the program's debt. In February 2006, Congress increased the borrowing authority of the NFIP to $20.775 billion to cover claims from Hurricanes Katrina, Rita and Wilma. This was essential to ensure that policyholders received payment on their flood insurance claims and PIA wholeheartedly supported this move by Congress.

From 1986 until Hurricanes Katrina and Rita, no taxpayer money was used to support the NFIP. Rather, the NFIP was able to support itself using the funds from the premiums it collected every year. All previous loans have been repaid with interest. It is important to note that the program was created to protect policyholders and provide loss mitigation during an average loss year. The program was not created to handle major catastrophic losses. Separate solutions that identify the needs of the nation's taxpayers and property owners must be identified for future large-scale natural catastrophes.

The entire future of the program is questionable if the debt is not forgiven. Officials from FEMA and the Government Accountability Office raised concerns that based on its current revenue, NFIP will struggle paying the interest on its debt, let alone anything else. And that's only if the amount of claims are below average. It is prudent to forgive the debt of the NFIP to ensure that the NFIP can build reserves for future flooding events.

Increase the maximum limits for all classes of insurable property, including building and contents coverage. At this time, less real dollar coverage is provided than in the past, coverage is provided than in the past, because limits have not been adjusted for infl ation since 1968.

Coordinate flood coverage for commercial policies in the area of business interruption insurance. Business interruption insurance is now only available in the private sector property market on a "covered peril" basis. Flood is not a "covered peril." Thus, businesses affected by Hurricanes Katrina and Rita were not covered for ongoing business needs and costs in the aftermath of these storms.

Renew the program for at least 5 years. A 5-year authorization provides the certainty needed for the program's continuity.

While PIA recognizes the amount of work that lies ahead in the negotiation process, we applaud Congress for extending the authorization prior to its expiration. If the program had been allowed to expire, agents across the country and their clients would have been placed in a difficult situation. An expired NFIP wouldn't be a first for Congress. It last expired Dec. 31, 2002, but was quickly reauthorized when Congress reconvened in January 2003. While it was only technically expired for a few days, it caused a lot of frustration and confusion.

The recent financial crisis may lead to greater attention to lender insurance requirements. This potentially could include NFIP requirements beyond mandatory zones. This means that insurance agents will have to engage the NFIP more frequently as lender requirements increase.

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Legislative Roundup: Feds Must Reform NFIP

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