The 21st Century Flood Reform Act has passed the House of Representatives. PIA National is not happy. Yes. The association wants reforms and even approves of much of what the act contains. There is — however — one part that is completely unacceptable and so unacceptable that the PIA opposes the bill going any farther.
In a statement the association said: “PIA opposed the bill over the provision that cuts the Write-Your-Own (WYO) reimbursement rate paid to insurance companies that participate in the NFIP by 3 percentage points. The WYO reimbursement rate is the vehicle by which agents receive their commissions for selling NFIP policies. Many WYO carriers have stated that, for them to remain in the program, they will pass on the cut to agents through their commissions.”
Adding to the statement, PIA National Vice President of Government Relations Jon Gentile said, “H.R. 2874 includes some important reforms to the National Flood Insurance Program (NFIP), such as revamping mapping and mitigation programs and including a mechanism for consumers and communities to appeal FEMA decisions. Notably, PIA is pleased with the inclusion of language to incentivize the growth of the private flood market, which we strongly support.”
PIA wants an actuarily sound program but — in addition to agents — this version of the bill will consumers.
“One of the goals of reforming the NFIP is to increase sales of policies, especially preferred risk policies, to put the program on a firmer financial footing. Reducing agent compensation undermines that goal by applying a disincentive for agents to increase sales. Such a cut will force agents who currently sell flood insurance to leave the program, because it will become prohibitively expensive for agents to continue to sell flood insurance, and it will discourage new agents from entering the NFIP policy market,” Gentile noted.
The PIA statement on the 21st Century Flood Reform Act added, “PIA will continue to work with Congress to provide a strong and robust protection for agent compensation, so consumers will have the expertise they need to navigate the NFIP, and the program itself can achieve the increased level of participation it requires to be financially strong.”
The focus now is on the Senate. It may act on the House bill or do one of its own. Then there is the option of doing nothing at all. That’s not likely since the current National Flood Insurance Program (NFIP) expires on December 8th of this year.
Other insurance groups share PIA’s concerns. Nat Wienecke is the senior vice president at the Property Casualty Insurers Association of America (PCI) said the bill does contain a lot of necessary reforms. And he likes the idea of opening the market to private insurers and that it will become more solvent.
However, “PCI, however, is concerned that the bill would make cuts to the Write Your Own companies that partner with FEMA to administer the NFIP,” Wienecke said. To emphasize the importance of that statement he said since 2004 the number of WYO insurers has fallen from 107 in 2004 to fewer than 70 today.
That’s a 35% drop.
NAMIC’s Jimi Grande agrees with the PCI and the PIA. “Cutting the reimbursement under the WYO program may make for good politics but it will ultimately only hurt the consumers that Congress claims to want to protect,” Grande said.
He pointed out that less than 10% of U.S. insurers are involved in the WYO program and this bill will make it even more costly for them to participate in the program and “will likely mean even fewer choices for the same consumers who benefit from competition in the market.”
As for the bill’s details, House Financial Services Committee Chairman and Texas Republican Rep. Jeb Hensarling said this truly is reform and will bring more private insurers into the flood insurance mix.
“There are a lot of good reforms in this bill for both taxpayers and ratepayers. It is an absolutely revolutionary reform that we can break open the government monopoly and bring in market competition, innovation, more affordable rates for so many,” Hensarling said.
Business groups and most taxpayer and insurance groups support the bill.
Democrats do not. Like the PIA, many in the Democrat Party think the bill will raise the cost of insurance to consumers and middle-income homeowners. They — however — go beyond PIA’s concerns and worry that higher premiums and surcharges mean fewer people are going to buy flood insurance.
Some environmental groups like what the House has passed but think the bill does not go far enough to protect the environment and hope the Senate will put even more reforms into this bill or into its own.
Here’s what the bill does:
• Brings more private insurers into the market
• Reduces the cost to the NFIP of repetitive loss properties
• Caps annual premium increases and surcharges
• Grandfathers some properties from risk-based rates
• Requires the Federal Emergency Management Agency (FEMA) to share flood loss data with private insurers
• Permits WYO insurers to sell private policies
• Improves flood mapping
Where PIA opposes the bill is in the WYO portion:
• It drops the reimbursement to private insurers which means that cut will be passed onto agents in the form of reduced commissions
• Limits the premiums on any residential property to $10,000 a year
• This applies no matter what the value of the property is
• Allows business to opt out of flood insurance requirements after a year
• Permits local governments to create their own flood maps
Hensarling said one of the biggest selling points of the bill is the mitigation of repetitive loss properties. “We have to realize if we’re going to make this program sustainable we cannot have one percent of the properties causing 25 percent of the losses. Ultimately, if all we do is rebuild the same properties in the same fashion in the same location, that is neither wise nor compassionate.”
Rep. Maxine Waters — the ranking Democrat on Hensarling’s committee — likes what Hensarling and Wisconsin Republican Rep. Sean Duffy are trying to do and their efforts toward bipartisanship. However, she — predictably these days when it comes to Democrat and Republican relationships — didn’t support the bill because she believes it hurts low and middle income homeowners.
“This bill will punish lower and middle-class Americans with increased premiums, surcharges, and reserve fund assessments. In the wake of a historic hurricane season that devastated so many communities, it is unconscionable that we are considering a bill that would make flood insurance less affordable. We should be focusing on providing additional disaster relief and recovery after these devastating storms, not punishing these communities with higher premiums and surcharges,” Waters said.
Her main complaints are provisions that let businesses opt out of flood insurance mandates and that will impact coverage for homes with past damages that have exceeded three-times the replacement value. This — she says is the case — even if they are sold the new owners. “As borrowers lose NFIP coverage, and especially if alternative private coverage is not available or affordable, these properties will lose value and the risk of abandonment and/or foreclosure increases dramatically,” she added
Florida Democrat Rep. Kathy Castor said the bill will “increase costs for many policyholders without providing the necessary resources. Increasing rates will not address the solvency of NFIP and will actually worsen the burden on FEMA and taxpayers,” she said.
Duffy disagrees. “I hear my friends say, ‘you’re going to hurt homeowners, the rates are going to skyrocket.’ What? On average, for a year, the price of flood insurance, on average, will go up twenty dollars-less than two dollars a month-and they’re screaming bloody murder about that?” he told his colleagues during the floor debate.
He did admit that properties that are highly subsidized will pay more for premiums but there is $1 billion in the bill to help more homeowners flood-proof their homes and to assist communities with flood mapping.
And then there’s the private market changes.
“We set up a private market. Now, you don’t have to take the private market, but you have an option to get a private plan that might have a better rate than the government offers you. You have a choice. A choice. God forbid a choice. That gives you a better price. And by the way, when we get the private market in, we offload our risk to the private sector. When a disaster hits Texas or Florida, it’s not just the taxpayers that bear all the burden. We have private companies in play. That’s a great thing. This is a good bill. This is a bipartisan bill. Let’s stand together and reform a program to help the homeowner and our national debt,” Duffy said.
What the bill does not do is directly address the NFIP’s debt. The program is now at its borrowing limit of $30 billion. However, some financial reforms are in the bill and the most important requires the NFIP to do an annual actuarial study to see if the agency is collecting enough revenue to cover expected long-term losses.
FEMA is also required to develop and maintain a reserve fund so it won’t have to borrow money from the Treasury to fund the program and to keep the NFIP from going deeper into debt.
Source link: PIA National, Insurance Journal