While the insurance industry is set to offer its own proposals for fixing the National Flood Insurance Program, at least one senator would like to find out what the White House has in mind.
At a hearing of the Senate Banking Committee last week, Sen. Paul Sarbanes, D-Md., ranking member of the panel, asked a witness from the Federal Emergency Management Agency when the Bush administration would offer its views on reforming the program.
"You're the experts, supposedly," he said to David Maurstad, acting director and federal insurance administrator of the mitigation division at FEMA. "Why shouldn't it be your responsibility to fix the flood insurance program?"
Congress has already increased the NFIP's borrowing authority to $18.5 billion, but FEMA has said it will require an additional $5 billion by mid-February. Although the program is required by law to repay whatever it borrows, with interest, both witnesses at the hearing and members of the panel acknowledged that doing so might be impossible given the amount of losses resulting from Hurricane Katrina.
The $23.5 billion in expected claims dwarfs the next most expensive event–the series of storms that struck Florida in 2004, causing $2.2 billion in claims–and also exceeds the entire amount paid out by the NFIP since its 1968 inception through 2004 by roughly $10 billion.
"I think there's a danger in trying to address the program in the context of these types of figures," Sen. Sarbanes said of the massive debt facing NFIP. He added he did not think a program could be established that would be able to provide ongoing coverage for flooding while repaying the $23 billion debt, plus interest. The interest alone, he noted, would amount to half the revenue collected by NFIP, according to figures provided by Mr. Maurstad.
NFIP takes in approximately $2.2 billion annually, noted Mr. Maurstad. In an average claims year, he said, the agency pays out roughly $1 billion in claims and distributes $650 million to write-your-own companies working with the NFIP to cover their costs.
An additional $200 million is used for operating expenses by the NFIP, including ongoing projects to upgrade the nation's floodplain maps and grants for mitigation efforts, with $350 million going to reserves.
Although the Senate will have to wait to find out what the White House thinks should be done, National Underwriter has learned that representatives of insurers and other industries are preparing to submit a joint proposal to Congress outlining what reforms they believe are needed.
In addition, a separate 22-point plan for reforms developed by the Independent Insurance Agents and Brokers of America is also awaiting action (see sidebar). It was submitted last November, when Congress approved an $18.5 billion increase in the NFIP's borrowing authority.
Officials at the IIABA and the National Association of Mutual Insurance Companies are stressing the importance of increasing NFIP funding because both money and time are running out. "We want to avoid the situation of several months ago when the Federal Emergency Management Agency instructed Write-Your-Own companies to cease making all claims payments," said David Winston, senior vice president of federal affairs at NAMIC.
Charles Symington, senior vice president for government affairs and federal relations at IIABA, added that "the industry's number-one priority is extension of temporary borrowing authority. The $18.5 billion in borrowing authority will only run through mid-February."
In addition to its 22-point plan, the IIABA is part of the group of stakeholders drafting a consensus plan of what is perceived to be needed reforms. Included in the group drafting the consensus plan are the American Insurance Association, the Financial Services Roundtable, the Mortgage Bankers Association, NAMIC, the National Association of Realtors, the National Association of Home Builders, and the Property Casualty Insurers Association of America.
The consensus proposal–which calls for bigger deductibles and higher coverage limits for NFIP policies–includes a suggestion that FEMA be given deadlines to comply with reform provisions, including the modernization law passed in 2004. This compliance mandate would include:
o A deadline for implementing rules and programs for the appeals process.
o A minimum training and education requirement.
o Mitigation programs.
o A report to Congress on implementation of the 2004 reform bill.
o Funding of a map modernization program so its creation can be expedited.
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