Senate Passes 4-Year Delay to NFIP Rate Increases

There is overwhelming support in the U.S. Senate to reform the flood insurance reforming Biggert-Waters Act. Last week the Senate passed S. 1926, also known as the Homeowner Flood Insurance Affordability Act of 2014.

The bill was supported by Democrats and many Republicans and the vote was 67-32.

In July Biggert-Waters went into effect and the 5.6 million flood insurance properties insured by the National Flood Insurance Program (NFIP) were now subject to mandated actuarial rates.The screaming started as soon as the rates rose. Many members of the Senate reported that people in their states — especially the poorer home owners — were experiencing huge and unaffordable increases.

The Senate bill delays those increases for four-years.

It is unlikely to pass in the House in its current form. House Speaker John Boehner has stated publicly that he does not want to see a four-year delay and will not support such a bill. He is — however — open to modifications to Biggert-Waters down the road but would not say when he’d look at proposed changes.

Many in the insurance industry — including the PIA — are wary of the rate increase delay. PIA National Executive Vice President Mike Becker said this bill does not solve the problem. “This bill provides needed relief for some policyholders by ‘kicking the can down the road’ for four years on implementing actuarially sound rates for coverage necessary to stabilize the program. At some point, Congress will have to address a long-term solution. This bill does not provide a solution, only a postponement.”

And Becker added. “Passage of this legislation will bring premium relief for the next four years to homeowners who faced the considerable burden of big increases in their flood insurance premiums. While that is positive, the bill will also add to the debt of the NFIP rather than reduce it.”

The National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCI) and the Consumer Federation of America (CFA) normally disagree on insurance legislation. All three agree this legislation is not good.

NAMIC senior vice president Jimi Grande said, “The legislation approved today by the Senate doesn’t make flood insurance cheaper, it just makes the American taxpayer foot the bill for other peoples’ flood insurance. It continues to hide the true risk that

Mike Becker

homeowners in flood-prone areas are facing and removes incentives for homeowners to protect their properties from flooding.”

PCI’s senior vice president Nat Wienecke added, “A financially sound NFIP is critical for the 5.6 million Americans who have come to rely on the important protection provided by flood insurance.”

Robert Hunter of the CFA agreed. “Most people would assume that a consumer group such as CFA would seek lower insurance rates for consumers. But we do not support lowering rates for an insurance program below sound prices, unless that is done by a separate program of subsidies, clearly identified and funded by taxpayers.”

As noted earlier, the bill has zero chance in the House and many experts say it won’t even get a vote and if it does look for an amendment similar to one advocated by Pennsylvania Republican Sen. Pat Toomey who wants a $40 surcharge put on each NFIP policy and an $80 surcharge on policies of people with incomes over $500,000.

He also agrees to cap rate increases to 25% annually.

Toomey said, “This ensures that subsidies in the program are paid for within the program, protecting the majority of taxpayers who do not live in flood zones.”

His amendment failed.

Here are the details of the bill:

• Flood rates stay as is until the flood mapping techniques of the Federal Emergency Management Agency (FEMA) are certified as “technically sound.”

• The flood rates stay as is until an affordability study is completed.• The bill does keep the phase-out of subsidized premiums for vacation homes and

those properties that have a history of flooding.

Alabama Republican Sen. Robert Shelby opposes the bill and voted no. He said, “I concede that there are some issues with the implementation of Biggert-Waters that were not anticipated. But, those can be addressed in discrete ways that do not require the ‘stop everything’ approach that the proponents of this legislation are advocating.”

Shelby also pointed out a big flaw in the bill — a bill he thinks goes too far. “Congress is often criticized for being unable to fix anything. Well, in 2012 we took a very significant step towards fixing the National Flood Insurance Program. And now, we have a bill before us that will undo virtually every reform we enacted less than two years ago.”

Sen. Pat Toomey

In its own offhand way, the Obama administration opposes the bill. It — via the Office of Management and Budget (OMB) — supports a phased transition to actuarially sound flood insurance rates. The $24 billion in debt NFIP needs “true flood risk” rates to get back into the financial black.

In its statement of policy the OMB notes delaying the rate reform will further erode the NFIP’s financial position. “The administration recognizes that many policyholders may be challenged financially by the new rates and remains committed to working with the Congress to develop approaches that ensure economically distressed policyholders are not unduly burdened while maintaining the financial stability of the NFIP.”

The administration believes this bill — however — does not get us there.

Also in the bill is the National Association of Registered Agents and Brokers Reform Act of 2014.