On Tuesday, the House voted 306-91 in favor of legislation that would reduce the rate increases taking place under the National Flood Insurance Program (NFIP). The measure, which proceeds next to the Senate, has not been without controversy.
Lawmakers have faced mounting pressure to rescind a recently enacted overhaul of the NFIP since homeowners in flood-prone areas complained about sharp premium increases. For its part, the insurance industry is expressing mixed reactions. The Independent Insurance Agents and Brokers of America contends that provisions of the bill constitute “a major win” for independent insurance agents, while another representative of agents is voicing skepticism.
PIA, NAMIC and PCI Weigh In
The National Association of Professional Insurance Agents (PIA) says it is concerned that delaying risk-based rates, while providing much-needed relief for many homeowners, does not address the underlying long-term problems of adequate rates and affordability.
H.R. 3370, the Homeowners Flood Insurance Affordability Act, “applies a Band-Aid—one that is necessary in some cases—but does not attempt a cure,” PIA says. Moreover, officials at the National Association of Mutual Insurance Companies (NAMIC) charge that the House has “overreacted” in approving legislation that “undo much-needed reforms to the National Flood Insurance Program adopted less than two years ago.”
Charles Chamness, NAMIC president, is quick to point out that criticism of the 2012 law is coming from “less than one-tenth of one percent of American homeowners.”
Nat Wienecke, senior vice president, federal government relations for Property Casualty Insurers Association of America (PCI), says the House bill will address “some of the ‘unintended consequences’ impacting flood insurance policyholders following enactment of B-W.”
Wienecke thanked Congress for working with the industry to address the technical and timing realities of implementing any programmatic changes to the NFIP, “ensuring a thoughtful and transparent implementation process for policyholders and other stakeholders.”
“We will continue to work with Congress on the long-term affordability and availability of flood insurance, as well as the long-term financial soundness of the NFIP,” Wienecke says. PCI members include more than two-thirds of the insurers that partner with the NFIP through the Write-Your-Own (WYO) program.
“One of the fundamental purposes of government is to protect their citizenry,” adds Steve Ellis, vice president, Taxpayers for Common Sense, on behalf of SmarterSafer.org. “What you have with flood insurance is, we’re providing subsidies that are encouraging people to build and to live in harm’s way.”
At the same time, an industry lobbyist says Sen. Robert Menendez, D-N.J., primary sponsor of “companion” Senate legislation approved by that body on Jan. 30, is already calling the bill, “Menendez-Grimm,” named after Menendez and Rep. Michael Grimm, R-N.Y., another primary sponsor of the House bill.
“It is pretty clear that the Senate is going to take up the House bill and pass it,” the lobbyist said. Although the lobbyist is “not sure exactly when that will happen,” he adds that Sen. Harry Reid, [D-Nev., Senate majority leader] will get it on as soon as “[Reid] finds a way to allow Sen. Mary Landrieu, D-La., to take credit for getting it done.”
“Although the President has taken a position against the bill, there is no chance that he will veto it,” the anonymous lobbyist adds.
Communications with FEMA
Another industry lobbyist notes there are “very clear requirements” in the bill for the Federal Emergency Management Agency (FEMA) to consult with the industry on implementation during the regulation-making period. The lobbyist said there is also the 6- to 8-month implementation timeframe for the WYOs.
The lobbyist says “vendors and WYOs are still concerned that there is no compensation for the millions of dollars of additional information technology costs that will result from this new bill,” while adding that [they] “are disappointed that the bill includes the directive to FEMA to offer monthly installments but does not authorize the WYOs to charge any per installment fee for such payment arrangements.”
“The key for the vendors and the WYOs will be to get in early with FEMA and work as partners to implement the new law (and unwind the old Biggert-Waters Act of 2012),” the lobbyist explains. “Historically, FEMA has been very poor at communicating with the private sector partners that actually operate the program (vendors and WYOs). “This must change or the implementation of Menendez-Grimm will be as grim and disastrous as B-W.”
Reinstating Flood Insurance Subsidies
As far as reactions go, Robert Rusbuldt, IIABA president & CEO, says the bill “aims to reduce some of the harmful effects of B-W without undoing the numerous positive provisions within the law.”
Rusbuldt explains the bill would repeal the entirety of Sec. 207 of B-W and would therefore reinstate the “grandfathering” of policies located in communities with a new or redrawn map. He adds the bill would also halt the elimination of subsidies for pre-Flood Insurance Rate Map (Pre-FIRM) properties that are bought and sold, “which is an extremely problematic provision in Section 205 of B-W.”
Charles Symington, IIABA senior vice president for external and government affairs, said the bill “represents a major win for independent insurance agents, as Section 207 and the bought/sold provision of Section 205 were the two specific items that the IIABA has been working on with Congress to find a solution.”
He urges Congress to “quickly resolve the differences between their two version of flood insurance reform in order to provide meaningful relief to consumers harmed by the drastic price increases associated with Biggert-Waters.”
Chamness, for NAMIC’s part, says resolving those few cases where rate increases far exceeded what was anticipated by the 2012 reforms to the NFIP “quickly became a choice on Capitol Hill between good policy and good politics, and unfortunately, but not surprising in an election year, politics won the day.”
Chamness adds that the House vote means that it “joins the Senate in stepping away from much-needed reforms that would make the NFIP sustainable for future generations, and instead chose to provide cheap flood insurance coverage to small minority of properties at the expense of everyone else.”
Jimi Grande, senior vice president of federal affairs at NAMIC, says repealing reforms could actually make future flood claims more likely, and losses more severe.
“Those with subsidized rates lose any incentive to protect themselves from flood damage,” he said, “and in the meantime until the program’s reserves reach adequate levels, the taxpayer will still be on the hook to make sure the NFIP can pay claims after major storms.”
Ellis warned that over time, the more that flood risk becomes distanced from rates, “you’re artificially holding down rates.
“While we know with sea level rise and other impacts, risk is increasing, so the pressures on this program are going to be even greater. It’s going to have bigger and bigger losses, Ellis said.
He said that, ultimately, the House bill would affect eventually every policy in the program because you’re grandfathering the old maps, “so as they do new maps and they’re finding out new risk, they’re actually holding them in, the old map and the old flood plain.”