Draft legislation reauthorizing and reforming the National Flood Insurance Program (NFIP) released over the weekend by House Republicans opens the door to privatization of the program.

The provision says that within 18 months, the Federal Emergency Management Agency (FEMA) should conduct separate studies on privatizing the NFIP and make reports to Congress on the issue.

The National Association of Mutual Insurance Companies (NAMIC) has spoken out against the privatization of the NFIP but the Reinsurance Association of America and the Association of Bermuda Insurers and Reinsurers has suggested privatizing all or part of the program.

Furthermore, the draft says, FEMA would be given the authority to determine if private insurers and reinsurers are interested in assisting communities in managing the full range of financial flood risks.

A source close to the matter who preferred to remain anonymous said Congress is unsure of what it wants and that it is "going through policy gymnastics in order to reduce the cost of flood insurance to constituents."

The provisions dealing with privatization are an outgrowth of hearings FEMA held last fall on the future of the program, which has been designated as a "high-risk" federal program by the Government Accountability Office (GAO) in a study released late last month.

The draft bill, obtained by NU, was released by the office of Rep. Judy Biggert, R-Ill. Ms. Biggert is the new chairman of the Insurance, Housing and Community Opportunity Subcommittee of the House Financial Services Committee.

The draft legislation, which would extend the program until September 2016, was released in advance of a hearing on the flood insurance issue that has been rescheduled for Friday. The NFIP is set to expire on Sept. 30.

While applauding the proposed reform bill and the NFIP reauthorization, the National Association of Professional Insurance Agents (PIA) said it is concerned about the planned study for privatization.

"We believe that privatization of the program is not a panacea and that solving the financial challenges facing the NFIP require addressing two areas: rates and the status of the program's existing debt," said Mike Becker, national director of federal affairs for PIA, in a statement.

The proposed legislation would allow FEMA to provide coverage at an additional cost for additional living expenses (ALE) "if a flooded property is unfit to live in" and up to $20,000 for business-interruption coverage—a new addition that concerns Eli Lehrer, vice president of operations for the Heartland Institute and consultant for SmarterSafer.org.

Mr. Lehrer called the drafted bill a "very good starting point, but not a perfect one."

The optional coverages "may be provided only if FEMA publishes in the Federal Register a determination that a competitive private market for ALE coverage does not exist and that FEMA can provide such coverage without borrowing additional funds," the draft legislation says.

The proposed bill would also permit FEMA to allow residential flood premiums to be made in quarterly installments, "although FEMA may increase rates and surcharges or deny coverage and impose other sanctions to ensure consumers pay for and maintain full-term coverage and not time the system to buy coverage only during higher flood-risk periods."

The latter covenant was added at the request of FEMA officials, who said that the provision, originally contained in legislation that passed the House last year, would lead people to buy coverage for the June and October quarters, then fail to pay for the rest of the year, adding to the approximate $18 billion deficit the NFIP now faces.

Mr. Becker said NFIP's debt should be forgiven "to ensure that the program can build reserves for future flooding events."

The draft bill also sets the deductible for structural damages to be a minimum of $2,000 for subsidized properties and $1,000 for nonsubsidized properties. These minimums would be increased to reflect inflation starting in 2012.

Furthermore, the draft contains a provision that would give FEMA the authority to delay designating any area determined by new mapping as flood-prone for up to two years, if requested by the community.

It also re-establishes a technical mapping advisory council, which would give local people the power to argue against designating a new area as flood-prone.

"We are hopeful that the formation of a Technical Mapping Advisory Council will be successful in depoliticizing the process of remapping," Mr. Becker said.

Special Reports /

House GOP: FEMA Should Look Into Privatizing Flood Program

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