The National Flood Insurance Program (NFIP)’s five-year authorization originally expired on September 30, 2017.
Congress had not agreed to reforms in time for a reauthorization bill to be signed into law by its expiration date, so it was included in a short-term extension of federal government spending, an ominous sign for an already-troubled program. The program was then subjected to four additional short-term extensions between December and March.
In March, during the debate over the omnibus appropriations package to fund the government for the rest of fiscal year 2018 (FY18), Congress decided to separate the NFIP from the appropriations process and extend it alone until July 31, 2018, while the rest of the government appropriations were made to last through the end of FY18.
PIA spoke out then about this bad decision.
The history of NFIP extensions has been messy. The program was extended 17 times between 2008 and 2012, when the previous five-year reauthorization was signed into law. The program lapsed four times in 2010 and 2011, once for over a month. The NFIP has lapsed briefly twice in 2018 alone during government shutdowns.
Related: Tackling the U.S. flood insurance challenge
Chronic inaction
The thinking behind decoupling the NFIP from the regular budget process was that by doing so, Congress would force itself to deal with the program’s reauthorization sooner.
That didn’t happen. More than two months after decoupling the NFIP from the rest of the federal appropriations process, the lack of any Congressional action on reauthorization finally prompted Sen. John Kennedy (R., La.) to insert a proposal in the Senate version of the Farm Bill to reauthorize the NFIP for six months beyond its July 31 expiration date.
The passage of yet another short term extension of the NFIP is preferable to allowing the program to expire going into the height of the hurricane season. During a lapse, new NFIP policies can’t be issued, requests to increase or decrease the scope of coverage can’t be processed, and renewals can’t be issued.
While we would ideally prefer multi-year reauthorization of the NFIP, we are pleased that the Senate will not let the program lapse while they work out a long-term reauthorization plan and hope that House conferees agree.
But we remain frustrated by Congress’s inaction on a long term reauthorization of the flood insurance program, the House did pass a bill in late 2017, the 21st Century Flood Reform Act (H.R. 2487). This bill would provide a five-year reauthorization and includes PIA-supported reforms, such as overhauling the flood mapping process, allowing the use of more precise risk-assessment tools to determine premiums, and creating an appeals process for local governments or homeowners to challenge federal mapping decisions. Many of these items will benefit consumers and strengthen the future viability of the program.
Related: NFIP changes: What agents selling flood coverage need to know right now
Flawed provision
PIA ultimately opposed H.R. 2487 because of a short-sighted provision that would very likely lead to fewer agents selling NFIP policies. The provision in question would lower something called the Write-Your-Own (WYO) reimbursement percentage by two or three points. WYO companies are insurance carriers that participate in the NFIP and are reimbursed by the government for the expenses associated with administering flood insurance policies; this reimbursement is called the WYO expense allowance. This reimbursement is used by carriers to pay administrative expenses as well as agent commissions, among other costs. To continue to stay in the NFIP program, carriers will likely be forced to pass any cut to the WYO rate on to agents through their commissions.
For PIA, a provision that will very likely lead to a cut to agent commissions was — and continues to be — a deal breaker. Cutting agent commissions will discourage agents from participating in the program, thereby depressing sales, and will have the unintended consequence of decreasing consumer participation in the NFIP. Any reduction in the number of policies in force will jeopardize the success of any reforms being enacted. In the aftermath of the devastation wrought by Hurricanes Harvey, Irma, and Maria last year, it is counterproductive to include a provision that undermines the NFIP’s sales force and makes it less likely that homeowners will purchase flood insurance.
Furthermore, cutting agents out of the NFIP sales process is completely at odds with policymakers’ statements, made during numerous congressional hearings on flood insurance, correctly noting that the NFIP needs more, not fewer, policies in force to fiscally strengthen it. Finally, minimizing the value of agents could thwart the Federal Emergency Management Agency’s ambitious goal of doubling the number of policies in force by 2023.
Related: It’s sink or swim time for the National Flood Insurance Program
A matter of urgency
PIA will continue our advocacy for a long-term reauthorization of the program that recognizes the essential role independent agents play in providing expert advice to consumers.
PIA calls on Congress to advance legislation that includes many of the provisions in H.R. 2487 but does not cut the WYO reimbursement rate. Most importantly, the time to act is not at the end of the current temporary extension. The time to act is now. Failure to act is not an option.
Jon Gentile (jonge@pianet.org) is vice president of government relations of the National Association of Professional Insurance Agents (PIA).
The opinions expressed here are the author’s own.
See also:
7 things to do to prepare for hurricane season
6 safety steps for contractors to follow this hurricane season