Since our article May 8th, The Current State of Flood Insurance, the House Financial Services Committee has been reviewing bills proposed to reform the NFIP, which expires September 30th. The P/C industry's major trade associations have opposed several provisions in existing draft legislation that would revamp the NFIP. Concern stems from the belief that the current proposals will negatively impact consumers and not provide the actual reforms needed to encourage the growth of the private market as an alternative to the existing NFIP.
The Write Your Own (WYO) program is of particular concern. Eighty-six percent of all NFIP policies affecting 4.29 million insureds are written under WYO policies. Some of the proposed legislation looks to reduce WYO activity, which would decrease the very involvement of the private industry that they are looking to encourage. The WYO policies have a better claims record than policies directly under NFIP. The authors of the draft legislation claim it will add reforms that put NFIP in a better financial position, provide aid for those unable to afford coverage, improve mapping, mitigation efforts and claims handling and encourage private participation in the market.
The House Financial Services Committee has passed two bills to reform the NFIP. One seeks to encourage more private insurance and move towards actuarially sound rates, the other addresses premium credits for mitigation efforts and underwriting urban properties. The committee reconvened June 21 in order to consider additional bills to reauthorize the NFIP, which expires September 30th. The major bill was proposed by Sean Duffy, chairman of the House Financial Services Subcommittee on Housing and Insurance. This is the 21st Century Flood Reform Act of 2017. This passed, and incorporates many ideas presented in individual bills. It looks to put the NFIP on stronger footing, improve flood mapping, mitigation and claims handling and growth of the private insurer participation in the market.
Originally a lowering of the insurer reimbursement was proposed, reducing it to 25 percent instead of the current 31.9 percent. The industry trade associations objected strongly, as agent commissions are paid out of this allowance. The bill has been amended and now states that the reimbursement will be lowered to 27.9 percent over a span of three years. The industry was split in its reaction, with National Association of Mutual Insurance Commissioners (NAMIC) supporting it and National Association of Professional Insurance Agents (PIA) maintaining its opposition.
The second bill to be approved is the National Flood Insurance Program Policyholder Protection Act of 2017 sponsored by Reps. Lee Zeldin and Carolyn Maloney; this bill passed with no opposing votes. The bill looks to limit premium rates and require FEMA to study and analyze the unique characteristics of flood insurance coverage in urban areas. Maximum premiums for 1-4 family properties would be set at $10,000, mitigation credits would be available for certain mitigation activities such as elevating homes, adding porous foundations, or moving boilers to higher floors. Also better coverage for co-op units within NFIP provided by FEMA is called for.
A third bill is under review as well. It is called the Sustainable, Affordable, Fair and Efficient National Flood Insurance Program Reauthorization Act of 2017 (SAFE) and is sponsored by a number of senators. This is also known as the Menendez-Kennedy bill. It looks to renew the flood program for six years, limit premium increases to 10, instead of 25 percent, provide vouchers to those whose premiums exceed 30 percent of their income, offer no or low-interest loans to those who raise homes and do other work to reduce flood risk, waive for 6 years the requirement of FEMA to pay the treasure $400 million a year in interest on existing debt, limit commissions to 22 percent instead of 31 percent, putting the savings back into the program, and give insureds an easier way to appeal claims and apply penalties to contractors with a pattern of underestimating damage to homes or underpaying claims. This bill does not have any provisions that would encourage the private market to move into the flood insurance market.
As of June 22, a number of other bills have been passed by the House Financial Services Committee. First is the Repeatedly Flooded Communities Preparation Act. This would establish community accountability by requiring mitigation plans for areas repeatedly damaged by floods. Such properties account for 25-30 percent of flood losses, and it makes no sense to support properties that are repeatedly flooded.
The Taxpayer Exposure Mitigation Act of 2017 repeals the mandatory flood insurance coverage requirement for commercial and multifamily properties in flood hazard areas. The idea is that this would provide greater transfer of risk under the NFIP to private capital and reinsurance. H.R. 2565 requires the use of replacement cost in determining flood insurance premium rates. H.R. 2875, the National Flood Insurance Program Administration Reform Act of 2017 would make administrative reforms to NFIP in order to increase fairness, accuracy, and prevent fraud and abuse of the program, thus protecting taxpayers. The Flood Insurance Market Parity and Modernization Act would clarify that flood insurance policies written by private carriers would satisfy the mandatory purchase requirement. From here the bills need to move to the House floor for a vote, then to the Senate.