Congress' Failure on NFIP Endangers Carrier Participation

SEATTLE--An official with the Federal Emergency Management Agency (FEMA) told insurance commissioners that Congress' failure at long-term renewal of the National Flood Insurance Program (NFIP) could jeopardize the participation of carriers in the program.

Addressing regulators here at the National Association of Insurance Commissioners' (NAIC) summer meeting during a Catastrophe Insurance Working Group session on Monday, Edward Connor, acting federal insurance and mitigation administrator, said with the Sept. 30 deadline looming, he worries about what effect that will have on private company participation in the program.

"That is when 90 companies say if they want to participate in the plan," he said, and he does not know how the uncertainty surrounding the plan will affect their involvement.

"It is a significant concern to us," said Connor.

In July, the current program was given an extension to Sept. 30 as Congress works on a five-year reauthorization package.

While the House has passed a five-year extension, the Senate has taken no action, and Connor pointed out that "Sept. 30 is coming up real fast and we do not want to wait until the last minute."

His observations came after Florida Insurance Commissioner Kevin M. McCarty and Mississippi Insurance Commissioner Mike Chaney spoke about the need for a reliable flood insurance program that does not put homeowners in jeopardy of being without the coverage.

Commissioner Chaney said he is frustrated as a regulator that there is not a "solid" program in place, and Commissioner McCarty called it "a travesty" that a program affecting so many policyholders and that is vital to the housing and real estate industry is not in a better place.

Connor said FEMA and administrators of NFIP are as "frustrated as you are" about the current state of the program, but their hands are tied by Congress.

Without Congress' approval of the NFIP, he said, the program loses its $27 billion of borrowing authority that can be utilized to cover claims and expenses. And without that money, renewals are jeopardized and banks and federal lenders could cancel borrowing or close on existing loans, in the most extreme cases--though Mr. Connor noted banks have not shown a desire to do so thus far.

He said one plan, to allow the gradual increase in premiums, is not helping the program. The plan would mean rates would not reach their actuarial rate for 10 years, and the NFIP needs the premium now.

"I need actuarial rate today," he said. "I can't wait 10 years."

To make it more affordable for homeowners, the program is considering an installment payment program, but Connor said development on that front is in its infancy and he could offer no insight into what such a schedule would look like.