Insurers Blast Flood Bill Over Concurrent Causation

Efforts to reconcile the bills failed, and the NFIP has been running on short-term extensions since it expired on Sept. 30, 2008. The latest extension expires on Sept. 30, 2010.

However, House passage with or without wind coverage might be moot, as insurer lobbyists warned the Senate may not vote on any long-term extension this year, meaning additional short-term deals to keep the current program operating are likely.

In addition, an amendment to the bill passed by the House drew condemnation from insurer groups, leading at least one to withdraw support.

H.R. 5114, the "Flood Insurance Reform and Priorities Act of 2010," sponsored by Rep. Maxine Waters, D-Calif., passed the House 329-90. It reauthorizes the NFIP for five years and includes provisions designed to phase in market rates and reduce instances where a homeowner submits multiple claims.

The industry's major concern involved the House's approval of an amendment from Rep. Taylor that requires Write Your Own insurers selling and servicing federal flood policies to agree not to use "anti-concurrent causation" language that would exclude coverage of wind damage simply because there is also flood damage. The amendment led the American Insurance Association to say it now opposes the bill.

"Adopting the Taylor amendment would force WYO companies to take a hard look at whether they want to continue participating in the program, and could actually result in a reduction in NFIP payouts to policyholders even when they are warranted," said AIA President Leigh Ann Pusey.

The Property Casualty Insurers Association of America said the amendment would require a WYO company to rewrite their insurance contracts to address the concurrent causation issue, "putting those companies at an increased risk of loss. This would create a competitive disadvantage for those WYO companies who support the NFIP, and threatens to force private insurers out of the WYO market."

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, said "it's extremely disappointing to see, once again, meaningful, needed reform legislation undermined."

"The original bill contained reforms with broad, bipartisan support that would have started the NFIP on the road back to financial stability," he said. "Rather than attracting new companies to the NFIP, this amendment will make it more difficult for insurers to write flood coverage and discourage them from participating in the program."

The bill reforms the NFIP by phasing in market rates and phases in actuarial rates for severe repetitive loss properties and those with substantial damage. An amendment to add wind coverage to the program was defeated in the House, prompting Rep. Taylor to seek a vote on a separate bill.

The bill is silent on dealing with the current NFIP deficit of more than $18 billion.

The bill attempts to end criticism of prior reform efforts that mandated increases in rates based on new mapping. The bill provides premium discounts for five years to assist consumers in newly designated flood hazard areas who are now subject to a new requirement to purchase flood insurance.

The bill also phases in rates for properties that were not previously in the flood plain and phases out subsidies for properties built prior to 1974.

It increases the coverage limits available for residential and commercial properties, which have not changed since 1994, and includes a provision added at the request of the Independent Insurance Agents and Brokers of America that provides an option to buy business interruption coverage for an appropriate premium.

It also increases the minimum deductible that more accurately reflects private market deductibles, and allows for premiums to be paid in installments for lower-income property owners.