Washington–Insurance companies who administer the National Flood Insurance Program but do not assume risk would find themselves shouldering some of the burden of future losses under proposals suggested to a Senate panel today.
In a hearing of the Senate Committee on Banking, Housing and Urban Affairs on Tuesday, lawmakers examined the present and future of the National Flood Insurance Program, taking a critical look at the state of current reform efforts and the potential for easing the costs of the program.
J. Robert Hunter, the director of Insurance for the Consumer Federation of America, suggested that lawmakers require insurers to put "skin in the game" and bear some of the risk of flood exposure, which committee chairman Sen. Richard Shelby, R-Ala., noted would help shift the burden off the taxpayers.
Mr. Hunter also suggested that lawmakers consider reducing the costs of the program by injecting a degree of competition into the market.
The costs of flood insurance could be divided into two categories of the actual risk and the administrative costs, he said. To encourage insurers to operate more efficiently, he said that the NFIP could establish a pure premium, or the risk element of the cost, and let the insurance companies compete on the administrative element.
Among the other proposals offered would be to extend the flood zones for which insurance is required from the current one percent, or "once a hundred years," zone to the "once every 500 years" zone.
Witnesses at the hearing, including Robert Hartwig, Insurance Information Institute chief economist, also suggested expanding the pool of NFIP participants by mandating flood coverage as part of the standard homeowners policy, albeit a part still separately run by the same insurers currently offering flood coverage.
Today's hearing action also provided committee members with an opportunity to express their frustrations over what they see as excessive delays by the Federal Emergency Management Agency in adopting reforms adopted by Congress for the flood program.
The recipient of their complaints was David Maurstad, acting director and federal insurance administrator in the FEMA Mitigation Division, which has authority over the NFIP.
Sen. Paul Sarbanes, D-Md., the ranking member of the committee, said he was "concerned about the handling of flood claims, especially since FEMA has not implemented many of the critical reforms Congress passed in response to the problems after Hurricane Isabel." Those reforms were included in legislation crafted by Sen. Jim Bunning, R-Ky., which extended the NFIP, and were signed into law in December of 2003.
Sen. Bunning also took Mr. Maurstad to task, growing visibly upset as he questioned why FEMA has not yet even published proposed regulations to establish an appeals process for NFIP decisions after 16 months since the bill was signed and 10 months after the regulations were supposed to have been finalized.
"You have not gotten the job done," he said, adding that FEMA should "talk to the people in Maryland. Talk to the people in Louisiana, Mississippi and Alabama."
Mr. Maurstad said that FEMA has an appeals process and that the agency is making a reasonable effort to formalize it.
"I do not accept a 16-month delay as reasonable," Sen. Bunning replied.
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