The chairman of the Senate Banking Committee today hedged when asked whether he would support a 50 percent increase in the borrowing authority of the National Flood Insurance Program.
In comments to Politico, Sen. Tim Johnson, D-S.D., banking panel head, said that raising the borrowing authority “is the primary solution” to providing the money needed to pay Sandy claims, but that he is “looking at alternatives.”
Johnson said, “That’s the only solution I see, but I could be wrong,” adding that he is “looking at other options to determine what my choices are.”
At the same time, the National Association of Professional Insurance Agents is voicing strong support for the Obama administration’s request.
“Not paying valid claims is simply not an option,” says PIA national president Andrew C. Harris.
“The federal government has both a legal obligation and a moral imperative to pay to indemnify policyholders for their covered flood losses in policies backed by the NFIP,” Harris says.
PIA officials cite various estimates that the NFIP could receive 143,000 claims from Sandy totaling as much as $12 billion and that all available funds could be depleted by the end of November as adequate justification for the large increase.
PIA officials acknowledge that the NFIP already carries a $17 billion debt from 2005’s Hurricane Katrina, which was not addressed in reform legislation passed by Congress this year.
The program has $2.9 billion of borrowing authority left, with less than $1 million in cash on hand.
Friday, the Obama administration submitted a request to raise the borrowing cap from the current $20.775 billion to $30.4 billion as part of a request for $60.4 billion in aid for areas stricken by Sandy.
“Because it is a government entity, the NFIP does not work like traditional insurance companies that are required to maintain adequate funds in surplus or secure reinsurance to pay future claims,” PIA officials say. Instead, they note, the federal government has chosen to be the insurer of last resort for NFIP flood claims.
PIA notes that it is unfortunate that reforms to the NFIP as part of the Biggert-Waters Flood Insurance Reform Act of 2012 and signed into law July 6 by President Obama, designed to put the program on a more firm financial footing, didn’t have time to kick in before Sandy struck. These reforms include eliminating premium subsidies and moving toward risk-based pricing.
“Unfortunately, Sandy did not wait for the flood-insurance reforms to take full effect,” says Richie Clements, PIA National’s representative to the NFIP.
“The additional burden on the federal budget will be hard to handle, but this is a matter of paying people what they are in fact owed under a valid insurance contract that is guaranteed by the federal government,” he says.