There is an assumption that Congress never passes much legislation in election years. That maxim will be put to the test again in 2014.
By an overwhelming margin, the Senate in late January passed a bill that would effectively delay for up to four years flood insurance rate hikes imposed by the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12). The House agreed to craft its own flood rate-hike delay bill.
Why the about-face in the Senate? As BW-12 began to be implemented, many homeowners—particularly those in coastal states—discovered to their horror that premiums under the National Flood Insurance Program (NFIP) were going to rise precipitously. Some could lose their homes; others could become stuck, unable to sell because new higher premiums could scare off potential buyers.
The vote comes just several weeks after Congress inserted a provision in an omnibus spending bill to delay until the end of the current fiscal year an estimated one quarter of flood insurance premium increases triggered by BW-12.
The budget language on flood insurance would block the Federal Emergency Management Agency from spending any money for the remainder of this fiscal year (through Sept. 30) to enforce higher premiums under Section 207 of Biggert-Waters.
The twin votes to provide NFIP rate relief fly in the face of a Government Accountability Office (GAO) report released in January that says Congress could help to increase private market interest in offering flood insurance products by eliminating subsidized rates and providing funding for a direct means-based subsidy to some policyholders. That would help to bring NFIP rates closer to the rates the industry would need to charge to cover the full risk of flood losses. But the report says it would also likely result in significantly higher rates for policyholders.
NFIP is $24 billion in debt, according to the GAO. An argument can be made that much of NFIP $24 billion debt is due to a lack of adequate relief following big hurricanes. As a result, the government owes money to itself, which it carries on the books of the flood insurance program. Rate reform could be combined with a partial or complete forgiveness of the NFIP debt, getting it off the flood insurance program's books where not all of it belongs.
TRIA Renewal
Another issue Congress must deal with this year is reauthorization of the Terrorism Risk Insurance Act (TRIA), which is set to expire on Dec. 31.
Due to the catastrophic nature of a terrorist attack, many insurers exclude terrorism coverage from their policies.
TRIA offers a solution through what has been a successful public/private partnership. As Congress moves forward on reauthorizing the program, it is important to keep the program at a point where all companies, small and large, have an opportunity to participate.
Failure to renew TRIA could induce commercial insurers to retreat from larger metropolitan areas, reducing availability of coverage and raising premium rates, according to an assessment last summer by Fitch Ratings. Lack of terrorism reinsurance coverage leaves individual insurers in the short term with commercial property and workers' compensation exposure from a potential event above prior risk tolerance levels, the firm said.
In a day and age that the threat of a terrorist attack is ongoing, it is critical that Congress reauthorize this program.
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