Editor’s note: Arthur D. Postal writes a weekly column for PC360 on insurance-related developments in Washington. Prevoiusly, he was National Underwriter’s Washington Bureau chief. Opinions expressed are the author’s own.
On Monday night, the Senate cleared for floor action legislation that could delay implementation of most flood insurance premium rate hikes for customers of the National Flood Insurance Program (NFIP) imposed by a 2012 bill for as many as four years.
The Senate brought the bill to the floor through rarely used emergency procedures by an overwhelming 86-13 vote. Floor action could begin as early as Wednesday, industry officials said.
The legislation has prompted animated responses from both supporters and opponents. But, an industry lobbyist cautioned that “this was a very strong vote” to clear the bill for floor action under accelerated procedures that required the support of every member of the Senate. “It would seem certain that they have the votes to go all the way with this one,” the lobbyist said.
Given the strong vote on the motion to proceed, opponents of the legislation said they hope the House will significantly modify the legislation so that it imposes caps on annual increases.
Sen. Bill Nelson, D-Fla., alluded to that problem for the legislation in a statement supporting clearing the bill for Senate action. “The problem is going to be down at the other end of that hallway,” Nelson said on the Senate floor, referencing the House, according to a transcript. “Because the speaker of the House has already said that he doesn’t like it, but what he’s going to find out that he doesn’t like is a lot of the members of the House of Representatives whose constituents are facing tenfold increases in their flood insurance.”
The bill is S. 1926, the Homeowner Flood Insurance Affordability Act of 2014 and National Association of Registered Agents and Brokers Reform Act of 2014. It would prevent flood insurance rate increases until the Federal Emergency Management Agency’s mapping methods are certified as technically sound and an affordability study is completed. The bill would keep in place phase-out of subsidized flood insurance premiums for vacation homes and homes that have a history of repeated flooding.
There are a number of amendments, including one aimed at facilitating sale of private insurance. The amendment would clarify that any private flood insurance policy accepted by a State shall satisfy the mandatory purchase requirement under the Flood Disaster Protection Act of 1973.
It is aimed at responding to the concerns of commenters, including mortgage servicers, mortgage companies and the National Association of Insurance Commissioners, to a proposal by federal banking regulators that seeks to make it easier for mortgage servicers to accept private insurance. The bank regulators proposed the regulation because it is mandated under a provision of the 2012 law.
Other amendments deal with consumer protection issues, such as force-placed insurance, or deal with regional interests. Nine amendments have been proposed so far, but no agreement has so far been reached as to which ones will be cleared for floor action.
Two of the amendments deal with a sweetener added to the bill, one which would create a National Association of Registered Agents and Brokers (NARAB). The White House also voiced concern with some parts of that provision.
Indeed, the White House immediately joined the battle last night by voicing opposition to it and calling for more modest changes in the 2012 law that the bill seeks to amend. The White House statement did not include a veto threat.
This prompted Sen. Mary Landrieu, D-La., to immediately fire back in a statement issued this morning.
“The Administration’s short-sighted, misguided and irresponsible Statement of Administration Policy threatens the very foundation of the NFIP and will only saddle taxpayers with higher costs when disasters strike,” Landrieu said.
“How this Administration thinks it can ‘ensure that economically distressed policyholders are not unduly burdened’ before it completes the Affordability Study or certifies that its maps are accurate and reliable is completely mind-boggling,” she said. “That is exactly the kind of backward and upside thinking that got us into this mess in the first place,” Landrieu added.
The insurance industry opposes the legislation because it is certain to add the ballooning deficit of the NFIP—now $24 billion—and cast a shadow on winning congressional support for other legislative priorities, for example, reauthorization of the Terrorism Risk Insurance Act, which runs out at the end of this year.
Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies (NAMIC), said, “Through the amendment process, the Senate can move from its current plan to simply wipe away the much needed reforms of Biggert-Waters to a more balanced and targeted approach.”
Grande said that pushing back the move to risk-based premiums for flood insurance “doesn’t reduce the cost of flood insurance; it forces every taxpayer to subsidize those homeowners facing real and serious risks from flooding.”
Lawrence Mirel, a partner in the Washington office Nelson Levine de Luca & Hamilton, said, “It is certainly understandable that property owners become alarmed at the prospect of sharp increases in the cost of flood insurance, and that their elected representatives respond to their concerns.”
However, Mirel explained that someone must pay for the risk of flood, and if not those who own the property at risk, it will be the taxpayers. “By slowing down the B-W reforms, Congress will ensure that taxpayers will continue to subsidize property owners at risk of flooding,” he said. “Major rethinking and restructuring of the program is needed if it is to survive.”
There are also practical problems because the 84 Write-Your-Own insurance companies that administer the program spent most of last year revising their software to reflect the rate hikes, which became effective in October. “The vendor community doesn’t like the bill because it will create massive IT changes and significant additional costs,” said an industry lobbyist. “Plus, it would cause more confusion and potential accusations of unequal treatment. There is also concern that FEMA [the Federal Emergency Management Agency, which administers the program] will take a long time to digest the bill and provide direction to the WYOs,” he said.
The Senate put the bill on the fast track in response to strong opposition by both consumers affected by the cost of the legislation, the Biggert-Waters Act of 2012, and development-related business interests. They feared it would retard the nascent recovery of a housing market severely hurt by the 2008-2010 economic downturn, and could lead to a new surge in foreclosures.
That’s because the 2012 bill exposed political deals on flood insurance subsidies dating back to the 1970s. The bill mandated phase-in of actuarial rates on flood insurance rates over four years.
States from Hawaii to Vermont will be impacted by the 2012 law.
According to the Tampa Tribune, only 20 percent of flood policies nationwide will see rates go up as part of B-W. But, Florida—and especially the Tampa Bay area—will be hit harder than most parts of the nation.
That’s because homes built before communities entered the flood program and drew up floodplain maps in the early 1970s have received artificially low rates for decades; the federal government is eliminating those subsidies, the Tribune said.
The Tribune said that Pinellas County has the highest number of those older properties in the country, estimated at more than 50,000, including condos and businesses, while Hillsborough has nearly 22,000 single-family homes alone being effected.
State officials in Louisiana estimate that the B-W could mean rate hikes of up to 4,000 percent on some Louisiana homes and businesses. There are nearly 500,000 flood insurance policies in effect in the state, and an estimated 18,000 of them reportedly will see an immediate impact, state officials said. Earlier, a Louisiana official estimated that 49 percent of the NFIP policies in the state are subsidized.