NU Online News Service, July 12, 3:45 p.m. EDT

The Federal Emergency Management Agency says in a letter that taking over management of more than 800,000 flood insurance policies currently administered by State Farm will save the agency more than $50 million annually, compared to the cost of the current Write-Your-Own program.

The letter, dated June 27, responds to a request for clarification of FEMA's position on a "depopulation amendment" that passed the House by voice vote as part of the debate over H.R. 1309, the Flood Insurance Reform Act of 2011. The request was made by Rep. Randy Neugebauer, R-Tex., chairman of the Oversight and Investigations Subcommittee of the House Financial Services Committee.

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 would also require FEMA to refuse to accept future transfers of policies to the NFIP Direct program.

The Property Casualty Insurers Association of America (PCI) and the Independent Insurance Agents and Brokers of America support the amendment.

It was prompted by State Farm's decision to drop out of the Write-Your-Own Program in 2010. Under an agreement with FEMA, State Farm ceded underwriting of 832,000 NFIP policies to the NFIP Direct program, with the transition scheduled to be completed by September.

FEMA's letter supports the arrangement with State Farm and takes a position against the proposed amendment.

The letter says that individual full-risk national flood insurance policyholders will average savings of $7 a year savings, for a total of $30 million in savings a year for all policyholders, under the new arrangement.

Subsidized policyholders will receive $20 million in savings, which will mean the agency "can slightly reduce the average amount of subsidy and there will be more funds available to pay claims or to reduce current borrowing."

The letter, written by Edward Connor, deputy, Federal Insurance and Mitigation Administration, for FEMA, says the agency has voluntarily agreed to inform NFIP Direct customers annually of their ability to switch to a WYO-carrier. The letter estimates the annual cost of this as $900,000.

The WYO program has been consistently targeted by the Government Accountability Office as being mismanaged by FEMA.

Ben McKay, PCI senior vice president of federal government relations, defended the purpose of the amendment. He says the "historic" 700 percent expansion of FEMA's involvement in flood insurance "will put the federal government in direct competition with private market insurers and make the NFIP Direct program the largest administrator of flood insurance in the nation."

But, Phil Supple, a spokesman for State Farm, says the "amendment is not about getting the federal government out of the flood insurance business.

"It is one group of insurance companies trying to poach business from a separate group of agents," he says.

Under the arrangement with FEMA, State Farm captive agents would continue to sell the policies, but claims servicing would be handled by FEMA and government-designated claims adjusters.

The House launched debate on the legislation at 1 p.m. today. A vote on the bill is expected by late today.

Special Reports /

FEMA Takes Stand Against NFIP Depopulation Amendment

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