NFIP Extension Bill Advances In House

Among other elements, the legislation includes provisions designed to phase in market rates and reduce instances where a homeowner submits multiple claims.

To assuage concerns by homeowners brought into the program through remapping, the legislation contains a provision that allows the Federal Emergency Management Agency, which administers the program, to suspend the mandatory-purchase requirement for up to three years if such relief is sought by a particular community.

It also adds optional coverage for additional living expenses and business interruption if FEMA charges full-risk rates for such coverage.

Moreover, under the legislation, FEMA would be allowed to offer policyholders the option of paying their premiums for one-year policies in installments.

However, under another provision of the bill FEMA would be allowed to bar future coverage, or impose higher rates or surcharges, if property owners attempt to limit their coverage by paying premiums only during storm season.

One new wrinkle: The bill mandates that both FEMA and the Government Accountability Office assess a "broad range" of options for privatization of the program "over time" and report back within a year.

Jimi Grande, National Association Of Mutual Insurance Companies' SVP of federal and political affairs, explains, "For the NFIP to survive, the prices for flood insurance must reflect the actual costs of flood risk for a property."

He says the bill will provide that transparency. In addition, Grande says, the Technical Mapping Advisory Council created by the legislation "will give communities a voice in the flood-mapping process, fostering a better understanding of what flood maps represent and how they are made."

Eli Lehrer, VP of the Washington office of the Heartland Institute and a consultant on flood and catastrophe issues, says the bill reduces subsidies substantially and moves more properties toward actuarial rates—"a significant improvement; a big step in the right direction."

But he adds that although the bill contains some real improvements to mapping and rating, "I'm really concerned about the provisions that add business-interruption coverage and other new benefits while temporarily suspending mandatory purchase."

"The bill is good, but it's far from perfect," he says.

Meanwhile, earlier last week, Craig Fugate, the administrator of FEMA, told the Subcommittee on Insurance, Housing and Community Opportunity of the House Financial Services Committee that the need for subsidies within the NFIP makes it unlikely that the program will ever be able to pay off its debt.

Fugate says the cost of subsidies in the current program—given mainly to ease costs for people brought into the program under recently updated flood maps—is reducing annual premium income by one-third.

Fugate testified that, while the current program collects more than $3 billion in premium revenue annually, estimates indicate an additional $1.5 billion in premium revenue is foregone due to the current subsidized rate policy.

"This annual premium shortfall has at times required FEMA to use its statutory authority to borrow funds from the Treasury," Fugate says.

He warns the panel that because of remapping and other issues, the cost of flood-insurance policies has become a political issue and should be part of the policy discussion about the program.

"These premiums represent an unbudgeted and often unanticipated expense to property owners. To some, the insurance is unaffordable."

Fugate notes that affordability concerns are being explored as FEMA continues to examine ways the NFIP should be revised. Among the issues being examined, he says, are credits and vouchers as well as high-deductible policies.