Agents Ready Clients For NFIP Lapse; Insurers Reconsider WYO

Facing another looming flood program expiration deadline on Sept. 30, agents are expressing frustration at Congress and are advising clients to pay renewals for flood policies in advance of the deadline in case there is another lapse.

Additionally, representatives from two Washington-based agent groups echoed comments by a Federal Emergency Management Agency official that write-your-own insurers participating in the National Flood Insurance Program (NFIP) are considering abandoning the program altogether because of multiple lapses and continued gridlock in Congress.

John Prible, vice president for federal government affairs for the Independent Insurance Agents and Brokers of America (IIABA) said Congress did include retroactivity in its June extension, which helped solve immediate problems agents faced.

With retroactivity, he said, "it is as if the program never expired." All policies that needed to be renewed, or new policies where the applications were made out, were processed as of the date of submission rather than the date of NFIP reauthorization, he said.

But Rita Hollada, National Association of Professional Insurance Agents' (PIA) representative to the Flood Insurance Producers National Committee (FIPNC), and a former FIPNC chair, said while agents were able to clear up issues because of retroactivity, the lapses did cause delays for clients who were purchasing new homes where flood coverage was required.

Howard Olderman, president of the Professional Insurance Agents of Connecticut (PIACT), said some clients became angry with him over the lapses. While the blame rested with Congress, customers only saw his office and his name as they suffered delays and uncertainty. "Some of them believe the insurance company and the flood program is in my office," he said.

But the main problem for agents and others as the flood program has repeatedly lapsed has been the confusion the lapses cause.

Mr. Prible said it is a challenge for agents to have to explain everything to frustrated clients when the program lapses. "You think it maybe gets easier because it happens so often," he said, but he noted that lapses throughout the year impact different batches of customers. For every lapse, he said, "Our guys constantly have to explain what Congress is doing, why [the program] expired, what FEMA is saying...."

And agents are not the only ones who have to deal with flood program administration headaches. Both Mr. Prible and Ms. Hollada said they are hearing that insurers are growing frustrated and are re-examining whether they want to continue selling policies on behalf of the NFIP.

Edward Connor, acting Federal Insurance and Mitigation administrator, raised similar concerns in recent comments to the National Association of Insurance Commissioners (NAIC).

Should private insurers pull out of the program, the NFIP would have to sell flood policies directly, and, Ms. Hollada said, the NFIP "isn't equipped to handle that kind of volume."

Mr. Prible added that agents, philosophically, would rather work with private insurers than the government.

Other carriers, Ms. Hollada said, are beginning to write flood coverage as part of a homeowners policy. Some had previously written flood coverage as an excess policy, offering coverage above that provided by the NFIP, she noted, but now some carriers are offering to be the primary insurer.

The private sector picking up the risk and charging adequate rates "would make life so much simpler" compared to dealing with the NFIP, Ms. Hollada said, but she acknowledged there would be consequences. Insurers would cherry pick risks, taking the favorable ones and leaving the flood program with the highest-risk properties, which could imperil the program further.

J. Robert Hunter, director of insurance for the Consumer Federation of America (CFA), however, said in a letter to Congressional leaders that private insurers should take up most of the risk and that the NFIP should either be ended or completely restructured.

He said the program has encouraged rather than dissuaded people from building along risky coastal areas. He also said old maps fool homeowners into thinking they do not need flood coverage when they are really at risk.

Mr. Hunter added in his letter that the NFIP is bankrupt and is, according to the Government Accountability Office, a "high risk" program for the American people. In addition, he said insurers participating in the NFIP's Write Your Own program overcharge for administrative and claim settlement duties.

"I ran the program in the 1970s and loved doing so because I thought it would end unwise construction in high-risk coastal and river areas, while providing affordable coverage for people who really needed it," Mr. Hunter wrote.

He added, "However, the NFIP has failed to meet its promise as politics and inept administration has made it a sort of Frankenstein monster, encouraging and even subsidizing unwise construction."