Facts matter: Independent agents and the NFIP
PIA will continue to work with congressional offices to explain the value that independent insurance agents provide in delivering flood coverage.
The May 18 hearing of the Senate Committee on Banking, Housing and Urban Affairs signaled the beginning of a period of Congressional activity in anticipation of the fast-approaching expiration date of the National Flood Insurance Program (NFIP). Its current authority will end on Sept. 30, 2021.
Since 2012, the program has only once been reauthorized for five years. The last long-term reauthorization ended in 2017, ushering in a period of ongoing uncertainty for real estate markets and other economic sectors. Numerous short-term extensions have been used as stopgaps, each lasting months, weeks or days. Three brief lapses in the NFIP’s authorization exacerbated the economic uncertainty facing policyholders, lenders and agents alike.
Critical coverage
For decades, the National Association of Professional Insurance Agents (PIA) has been a strong supporter of the NFIP, and we remain a champion of the NFIP because it provides property owners with critical flood insurance coverage that the private market, despite its growth, remains unable to adequately supply. The NFIP needs modifications. However, previous attempts to address the program’s persistent, lingering debt by moving toward risk-based rates have met with considerable opposition. The NFIP’s newest changes to its rating methodology, known as Risk Rating 2.0, have already been subject to substantial resistance.
During the hearing last month, some frequently heard myths were repeated about the work agents do in delivering flood insurance to consumers and how much they and the insurance carriers involved in the NFIP, referred to as Write Your Own companies (WYOs), are compensated.
Specifically, the WYO reimbursement rate, which is the 29.9% of premium that carriers earn from the NFIP as compensation for the processing and servicing duties they perform, is often misunderstood as an NFIP agent’s commission. Independent agents are often inaccurately characterized as being the sole recipients of the entire 29.9% payment of premium made by the NFIP to WYO carriers. That is simply not true. While carriers compensate agents using reimbursement rate funds, agents receive a fraction of that sum; they do not receive 29% commission on NFIP policies.
Likewise, the work of NFIP agents is often the subject of skepticism; policymakers and members of the public alike question the demands placed on NFIP agents and can be dismissive of the value agents provide. These unfair depictions dismiss the level of expertise that agents offer to their customers and ignore the extensive learning curve agents new to the NFIP must navigate to achieve that level of expertise.
Another common misconception about NFIP agents is that the renewal process is effectively self-executing and requires little or no work by the agent. Such statements are both incorrect and insulting.
Value of the flood agent
On the contrary, renewing an NFIP policy is a time-consuming process that requires extensive communication with the insured, particularly if FEMA has made regulatory changes since the policyholder’s last renewal or the policyholder has taken mitigation steps that require policy changes. In considering those issues, among others, the agent must remain focused on hard deadlines, which vary by policyholder.
An agent’s work on behalf of an NFIP customer is far from automatic; it necessitates a great deal of organization, work and expertise that continues long after the initial policy is sold. Independent agents often invest years of time and effort in the sale and maintenance of NFIP policies. They may not net any revenue at all until they have devoted several years to a single policy. Reducing the commissions NFIP agents earn would discourage them from remaining in the program and dis-incentivize new agents considering the expansion of their businesses to include flood products.
For years, PIA has opposed any attempts to cut the WYO reimbursement rate because such a cut would unfairly reduce agent commission for selling NFIP products.
In 2017, legislation championed by then-House Financial Services Committee Chairman Jeb Hensarling (R-TX) would have cut the WYO rate by 3%. The cut in the 2017 bill would have been passed on to agents by WYOs because they could not have absorbed the cut and remained in the program. PIA stood firm during this debate and opposed the bill outright. We were the only national insurance trade association to do so. When it became clear that the bill would not pass, PIA worked with congressional offices to forestall similar attempts in the future by explaining why such a cut would be detrimental to both agents and consumers.
In 2019, our work paid off. The 116th Congress’s House Financial Services Committee was led by Chairwoman Maxine Waters (D-CA), who shepherded an NFIP reform bill through her committee that did not include a cut to the WYO rate. Chairwoman Waters’ bill passed out of committee unanimously.
PIA encourages the 117th Congress to pass a bill like the bipartisan 2019 House reform bill. We have been pleased that the initial drafts of NFIP reauthorization legislation keep the WYO reimbursement rate at its current level. PIA will continue to work with congressional offices to explain the value agents provide in delivering NFIP policies to consumers, and we will oppose any bill that would reduce the WYO reimbursement rate.
Wayne White (president@pianational.org) is president of the National Association of Professional Insurance Agents (PIA), based in Alexandria, Va. These opinions are his own.
This article is published with permission from PIA and may not be reproduced.
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