Flood Insurance

Reauthorize the National Flood Insurance Program

PIA supports a long-term reauthorization of the National Flood Insurance Program (NFIP) that recognizes the key role agents play in delivering the program to consumers.

The NFIP was created in 1968 to provide property owners in the U.S. with flood insurance coverage for their homes. At the time, the private insurance market treated flood as an uninsurable risk, and, as a result, flood insurance products sold through the private market were cost-prohibitive or unavailable. In the decades since its inception, the NFIP has largely remained the only means by which people could purchase insurance products to protect their financial interests from the risk of losses posed by floods. PIA supports the reauthorization of the NFIP, as the program continues to provide critical support to those whose properties are at risk of and affected by floods, along with coverage that the private market remains largely unable to supply.

The role of the independent agent

Independent insurance agents generally serve as the first point of contact for a potential consumer inquiring about a flood policy. Agents are essential to ensuring that property owners make educated choices about the purchase of flood insurance policies for their homes and businesses.

Assisting a consumer in purchasing an NFIP policy is a difficult process requiring specialized knowledge, and the purchasing process is very different from that of a standard homeowners’ or auto policy. Agents must remain up to date on ever-changing laws and regulations governing flood insurance coverage requirements, as well as the evolution of applicable floodplain maps and relevant community participation. They must be conversant in the ten current flood zones, and they must be comfortable guiding their customers through the lengthy and often bureaucratic process of obtaining an Elevation Certificate.

Reauthorization

The NFIP’s most recent five-year reauthorization expired on September 30, 2017. Leading up to that deadline, the 115th Congress was unable to agree on reforms to the program. As a result, the NFIP briefly lapsed three times. Since the 2017 deadline, the NFIP has been subject to a total of 16 extensions of varying lengths, none longer than the one-year extension currently in effect. The program is now set to expire on September 30, 2021.

This year, the reauthorization process is further complicated by the fact that the Federal Emergency Management Agency (FEMA), which oversees the NFIP, is scheduled to deploy new premium rates on October 1, 2021—the day after the NFIP will expire if it is not reauthorized. Risk Rating 2.0 will recalculate premiums based on a new method of property risk assessment known as Risk Rating 2.0.

PIA supported two 2019 bills that unanimously passed the House Financial Services Committee in the 116th Congress that would have reauthorized and reformed the NFIP: the National Flood Insurance Reauthorization Act, sponsored by Rep. Maxine Waters (D-CA), and the NFIP Administrative Reform Act, sponsored by Rep. Nydia Velazquez (D-NY). Together, these bills constituted a strong bipartisan legislative package that should be the starting point for efforts to reauthorize the program in the 117th Congress.

 

PIA advocates for inclusion of the following provisions in any reform and reauthorization bill; many of these provisions were included in the 2019 legislative package:

  • Maintenance of the Write-Your-Own (WYO) reimbursement rate at its current level of 29.9 percent
  • Continuous coverage protections for policyholders who leave the NFIP to purchase a private flood policy and later return to the program
  • Allowance for policyholders to purchase additional increased cost of compliance (ICC) coverage and use it for pre-disaster mitigation
  • Increased funds for mapping and reform of maps for accuracy
  • Continuation of the gradual implementation of actuarially sound rates and restoration of grandfathering provisions, as included in the Homeowner Flood Insurance Affordability Act (HFIAA) of 2014
  • Consumer-friendly provisions for appealing mapping decisions
  • Improvements to the claims process
  • Creation of a Federal Flood Insurance Advisory Committee with insurance agent representatives

Notably omitted from the package was a cut to the WYO reimbursement rate, which is the vehicle by which insurance agents are compensated for selling NFIP policies. Carriers pay agent commissions out of their WYO reimbursement rate proceeds; any cut to the WYO rate would force carriers to pass the loss on to agents by reducing their commissions. In the new Congress, PIA will remain vigilant in opposing any attempt to cut the WYO reimbursement rate during the NFIP reauthorization process.

As the reauthorization process continues, PIA will continue to work with Congress to ensure that agents’ voices are heard and their invaluable work acknowledged.

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