Washington — Language extending the National Flood Insurance Program's (NFIP) statutory authority through March 6, 2009, will move now to President Bush after passing both the House and Senate as part of a continuing resolution.
The extension will allow the program to continue operating under its current terms and paying claims related to several recent major storms and flooding events. Without the reauthorization, the 40-year-old NFIP was set to expire today.
"While we would have preferred that Congress pass a long-term extension with much-needed reforms, it was vital to ensure that the NFIP would not lapse on September 30," says David Sampson, president and CEO of the Property Casualty Insurers Association of America, Des Plaines, Ill. "Expiration of the program would have serious consequences, not just for policyholders but also for the nation's economy at large."
Separate bills that each would have extended the program for five years passed the House in October 2007, and the Senate in May of this year. But with progress stalled on resolving differences between the two bills, Congress opted for a short-term extension to allow further debate on proposals to substantially change the program's terms of operations.
Among the most controversial proposals were provisions of the House bill empowering the NFIP to begin offering windstorm coverage both through optional personal and commercial multiperil policies. Based on legislation introduced by Rep. Gene Taylor, D-Miss., the provision drew considerable opposition from some quarters of the insurance industry. Washington-based American Insurance Association President Marc Racicot said his members remain "committed to opposing efforts to add wind coverage to the NFIP."
"Dramatically expanding the NFIP to include wind coverage creates the potential for huge deficits that all taxpayers would ultimately be responsible for—on top of the current NFIP debt of about $17 billion," Racicot said in a statement. "We continue to believe the solution rests in improving, not displacing, the private sector's ability to serve homeowners and businesses in the path of potential storms."
Though both bills would phase out some premium subsidies, leaders also have disagreed on the speed with which risk-based rates should be implemented. The Senate bill would allow premium increases of up to 25% annually, while the House bill would cap hikes at 15%. Pay-as-you-go budgeting rules also present issues for the Senate version of the bill, which would forgive the more than $17.5 billion the NFIP borrowed in the wake of 2005's record hurricane season.
Ordinarily just $1.5 billion, the NFIP's borrowing authority was raised to $20.75 billion in March 2006, and Congress would need to raise the debt ceiling again if recent claims exceed that threshold. As of December 2007, the Federal Emergency Management Agency estimated the program remained $17.3 billion in debt, and the program has since accrued further claims arising out of 2008's Midwest and Northeast floods, tropical storms Fay and Hanna and hurricanes Gustav and Ike.
Under the version of the bill passed by the House, the NFIP's maximum coverage limits would rise for the first time since 1994, from the current ceilings of $250,000 for residential properties and $500,000 for commercial properties, to $335,000 and $670,000, respectively, and the coverage limit on contents would rise to $135,000 from $100,000. The bill would introduce coverage of additional living expenses, business interruption and finished basements.
The Independent Insurance Agents & Brokers of America, Alexandria, Va., said it would push during the coming debate particularly for provisions raising the NFIP's maximum coverage limits and adding optional business interruption insurance to the program. Neither provision was included in the Senate version of the bill.
Established in 1968 by the National Flood Insurance Act, the NFIP has more than 5.2 million commercial and residential flood insurance policies in force in more than 20,000 participating communities. More than 95% of the policies are sold and serviced through write-your-own (WYO) insurers, which are paid by FEMA for marketing the policies and processing claims.
The Senate bill includes language creating the Office of the Flood Insurance Advocate to see that WYO insurers negotiate on behalf of the NFIP in good faith. The OFIA, which also would coordinate a mandatory arbitration process sought by state insurance regulators, would regularly audit WYO insurers, investigate potential instances of fraud and abuse, and refer criminal violations to the U.S. Department of Justice.
In addition to the optional windstorm coverage, the House bill would bar WYO insurers from including anti-concurrent causation exclusion in homeowners' insurance policies.
Source: Individual.com, via Comtex
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