NFIP: More of the same

The real problem is for people who are trying to do a house or property closing and are required to have flood insurance. If they haven't gotten a policy already, they won't be able to close. FEMA advises that if the premium payment was part of the loan closing and made from the escrow account, title company, or settlement attorney, and is received by the insurance company within 30 days from the closing, the policy will be issued. However, if the premium was not part of the closing, both the application and premium must be received within 10 days of the closing date for the policy to be issued.

AA&B: What about coverage if there's flooding in the interim?

Griffin: If the policyholder is renewing coverage and has a flood claim, they potentially could not have coverage. The key is whether or not Congress makes the reauthorization of the NFIP retroactive, in which case claims during this period should be covered. But again, if the policyholder is refinancing or increasing coverage limits for some reason, that coverage is on hold.

AA&B: What's the impact on agents?

Griffin: Their biggest problem in advising clients is that there really may not be another practical source for flood coverage besides NFIP. Some insurance companies do write excess flood coverage, but that's all it is – excess coverage over the limits of the federal program. Some companies like Chubb write flood as part of their homeowners coverage in some areas for a select clientele, but this is a very limited program.

(See an article on excess flood insurance, "Why NFIP isn't enough.")

AA&B: What are the next steps to reauthorize NFIP?

Griffin: The Senate plans to take up reauthorization when it returns on April 12, but even then the extension of the program would only be until April 30.

AA&B: What is the long-term plan for the NFIP?

Griffin: A House hearing is scheduled for a reform bill on the flood insurance program on April 21, and the following day legislators will try and mark up the bill in the House Financial Services Committee. But even then, the bill will still have to go to the House floor and to the Senate, so we don't expect quick action on reforms and long-term reauthorization. NFIP reauthorization was part of the tax extenders bill (H.B. 4851) passed in the House and Senate, which was primarily designed to extend the Bush business tax cuts; when it passed the Senate, they added an extension to COBRA, unemployment benefits and NFIP reauthorization. If this is approved, NFIP will be extended to Dec. 31. This bill is in currently in the Senate conference committee. The possibility is that after legislators return from recess on April 12, they could take up the extension bill.

AA&B: Are there any viable alternatives to a federal flood insurance program?

Griffin: The federal government will probably continue to have the program because private sector insurers aren't interested in writing it. Although Nationwide Insurance announced a willingness to write flood insurance as part of their homeowners' policy, in return they want freedom of rate and form from state regulation and a federal reinsurance backstop. However, at this point, their proposal hasn't really been able to gain much traction in Congress.

AA&B: Could it be made part of the current proposals for a national catastrophe insurance program?

Griffin: Congressman Ron Klein (R-Fla.) introduced H.R. 3355, a national catastrophe fund bill that included flood coverage when a similar version passed in 2007. However, this time, the bill does not include this provision. Rep. Gene Taylor (D-Miss.) wants to expand the NFIP to include windstorm, which of course is more controversial from a coverage standpoint.

AA&B: What's the best we can expect given the current situation?

Griffin: PCI supports 5-year NFIP extension periods, which are included in Senate and House bills that passed in 2007 and 2008.