Conservative Republicans on the House Financial Services Committee put their stamp, as they like to phrase it, on the 2012 legislation mandating a phase-in of actuarial rates on flood insurance through the National Flood Insurance Program by including a provision designed to encourage growth of a private market.

Robert Hartwig, president of the Insurance Information Institute, said only a limited market currently exists for personal lines flood insurance, and growth of the private market would be thwarted if the imposition of actuarial rates for the NFIP is delayed or reduced, as is currently being debated.

At the same time, Hartwig said a few carriers write the coverage on select properties, but he emphasized that the NFIP “still dominates the market and will remain the dominant writer so long as its rates remain heavily subsidized by the federal taxpayer.”

Hartwig said the 2012 law, the Biggert-Waters Act, would have, over time, eliminated these subsidies, bringing NFIP rates closer to an actuarially sound basis.

“It is likely that some insurers would be willing to increase capacity and others would enter the market for the first time, bringing totally new capacity to the market,” Hartwig said.

However, he said a “prolonged delay in BW-12 implementation. or legislation that results in a de facto rollback of BW-12, will have a significant adverse impact on the amount capital likely to be committed by private insurers in this market.”

Statistics provided by the I.I.I. indicate that Lloyd's of London syndicates have offered voluntary policies for a number of years, and large insurers such as AIG, Fireman's Fund and Chubb have entered this market in the past few years, focusing mainly on homes in low- and moderate-risk areas.

The NFIP has 5.6 million subscribers.

Status of the NFIP Debate

The major hope of consumers and members of Congress seeking to delay the flood insurance rate increases imposed by a 2012 bill now rests on court action in Mississippi or on a bill that the Senate will likely act on next week after a House committee recently rejected a proposed amendment.

The House Rules Committee Tuesday decided not to allow a vote on an amendment that would have effectively added S. 1610, the Senate's Homeowner Flood Insurance Affordability Act, to H.R. 3309, the Innovation Act. The amendment was proposed by Rep. Kathy Castor, D-Fla.

Industry lobbyists say a host of factors, including “substantive and procedural issues” could delay legislation action until next year. The lobbyists also note that there is significant opposition to a wholesale delay of the rate increases, especially in the House. The lobbyists say that some members of the House Financial Services Committee are proposing much more limited relief than proposed in the Senate bill, and are hoping to delay action until early next year.

That leaves adding the bill to the National Defense Reauthorization Act (NDAA), S. 1867, as the sole vehicle for prompt legislative action this year. The bill is currently on the Senate floor, and is must-do legislation with strong bipartisan support. Voting will start when the Senate reconvenes Monday, and Senate staffers have spent the Thanksgiving recess culling the proposed amendments back to 30-40, industry officials said.

“But Senate action on NDAA could get stuck and roll into next year,” one industry lobbyist said. “In any event, conference and final passage will likely go into next year,” the lobbyist said.

That would mean that FEMA guidance to roll back the increases would not be ready until April at the earliest.

The lobbyist asked, “And, will anyone compensate the Write Your Own companies or their vendors for the millions of dollars in costs associated with re-rating millions of policies and then undoing and redoing them?”

At the same time, there is growing pressure from consumers and members for relief.

For example, the co-chairs of the House Florida congressional delegation, representing the two ends of the political spectrum, conservative and liberal, today sent a letter to the governors of six coastal states thanking them for supporting a lawsuit filed in Mississippi aimed at delaying the rate increases.

And state lawmakers in Clearwater and St. Petersburg say they can't wait for federal action. They are asking the state to take action that would encourage growth of a private market in flood insurance.

In the other developments, Rep. Vern Buchanan, R, a conservative, and Rep. Alcee Hastings, D, sent a letter to Gov. Phil Bryant, R-Miss., voicing strong support for the lawsuit filed by the state insurance commissioner in Gulfport, Miss., in October.

The suit alleges that the Federal Emergency Management Agency had “unilaterally” decided to raise flood insurance premiums before completing an affordability study as mandated by law.

However, Craig Fugate, FEMA administrator, has testified repeatedly before Congress that the 2012 law does not provide him with any flexibility in rolling out the rate increases.

And the House voted overwhelmingly for final passage of the Biggert-Waters Act, 406-22, on July 12, 2012, with 21 Republicans and one Democrat opposed. Both Buchanan and Hastings voted “yes.”

A vote in June on an amendment to unrelated legislation that would delay the increases passed the House 281-146, meaning more than two-thirds of those who supported its passage now seek to delay its enforcement.

Special Reports /

Hartwig: Delaying NFIP Rate Increases Would Discourage Private Market Participation

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