Whether State Farm captive agents will continue to be allowed to service flood-insurance policies currently placed through them will be on the agenda when the full House Financial Services Committee takes up legislation reauthorizing the National Flood Insurance Program (NFIP).
The issue is dividing the industry, with State Farm and its supporters on one side, and the Property Casualty Insurers Association of America (PCI), the Independent Insurance Agents and Brokers of America (IIABA), and other similarly situated companies and agents on the other.
FEMA, too, is taking a position, saying it sees no reason current policy should be altered and, whether or not State Farm agents continue to service the policies, other companies and agents can seek to win over these customers through current marketing means.
The issue is coming up through an amendment now being drafted to the NFIP-extension legislation. The amendment would require the government to promptly find new private-sector homes for the 829,273 flood-insurance policies now serviced by State Farm's agents.
The amendment—which will be introduced by Rep. David Schweikert (R-Ariz.) and Rep. Emanuel Cleaver (D-Mo.)—was prompted by the June 2010 decision of State Farm to withdraw as a "Write Your Own" (WYO) company but to leave its captive agents still responsible for servicing the policies and finding claims adjusters to deal with the claims process.
As part of the withdrawal process, State Farm has been gradually transferring its 829,273 flood-insurance customers to NFIP-Direct. According to FEMA, as of Feb. 28, 363,284 policies remain to be transferred and the process will not be completed until Sept. 30.
State Farm was the second largest servicer of NFIP policies before it decided to exit the program.
Under the amendment, FEMA will be required to replace the policies now serviced by State Farm agents with other WYO companies within 27 months of enactment of the legislation and to have a plan underway to do so within 90 days of enactment.
State Farm says that many of its estimated 17,000 captive agents will be affected by the proposed amendment.
Officials at PCI and IIABA, along with Cleaver and Schweikert, believe the policies should be returned to the private market.
But FEMA has no problem with State Farm agents continuing to service the policies and leaving them with NFIP Direct.
Agency officials say the steps taken by State Farm after it decided to opt out of the WYO program "are appropriate and not inconsistent with standard and accepted practices."
The officials add that "servicing these policies through the direct side is appropriate and necessary, and that no alteration to these practices is required."
The FEMA officials, who declined to be identified by name, contend that any other insurance company that chose to opt out of the WYO program would have the same option State Farm has had.
The officials state, "There is also nothing to prevent other insurance companies, through normal business-marketing efforts, from appealing to these State Farm clients' business even now, if those companies are seeking to acquire business from these insurance-policy-holding consumers."
One official adds, "FEMA sees no reason to alter these practices, and in fact, firmly believes that the direct-side insurance policy option is a necessary and valuable service that can ensure that all individuals will have an opportunity to purchase policies."
The bill under which the amendment will be filed is H.R. 1309, the Flood Insurance Reform Act of 2011. It was reported out by the House Subcommittee on Insurance, Housing and Community Opportunity April 7.
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