Congress Reopens Flood Gates

The recent lapse in the National Flood Insurance Program served to remind many that the cash-strapped program is overdue for a permanent solution.

For the past few years, the program has survived has survived on a series of temporary extensions and, according to the U.S. Government Accountability Office, the NFIP owes the U.S. Treasury nearly $20 billion, and is ill equipped to meet losses in the event of a future catastrophe. Against this backdrop, the House Financial Services Subcommittee on Housing and Community, held hearings Wednesday on the program.

One of the primary issues standing in the way of an agreement on how to fix the program is whether or not to include coverage for wind damage in the program. Many politicians who represent coastal districts are calling for a unified disaster program that addresses multiple perils. Rep. Gene Taylor (D-Miss.), who has introduced H.R. 1264, the Multiple Peril Insurance Act, also testified before the committee.  

“Homeowners and business owners in coastal communities need to be able to buy hurricane insurance that will cover hurricane damage without needing to hire lawyers and engineers to engage in prolonged legal disputes over what portion of the damage was caused by flooding and what portion was caused by wind,” Taylor testified. “As long as wind and flood coverage are in separate policies, there will be gaps in coverage and disputes over causation after hurricanes.”

Testifying on behalf of the Write Your Own Coalition, Mark Davey, president and CEO, Fidelity National Financial Specialty Insurance Group, said the inclusion of wind coverage was unnecessary. “Expansion of the NFIP to include wind and any other natural catastrophe insurance issue will ultimately drive out private sector capital and competition, leaving taxpayers with massive risk exposures,” Davey said. “To the extent that there are political imperatives to address very specific constituent groups with very specific needs, we believe that discrete and narrowly targeted, market-based solutions should be used rather than a large scale government expansion of the NFIP.”

Likewise, in a statement, the National Association of Mutual Insurance Companies (NAMIC) said instead of adding wind coverage, reform of the program should focus on modernizing the nation’s flood maps to better determine necessary coverage, phasing in actuarially sound rates, and phasing out subsidized coverage for secondary homes and investment properties. Kathy Mitchell, NAMIC federal affairs director, said adding windstorm coverage to the program would outweigh the benefits of the reforms and sink the entire NFIP deeper into debt. “It would add an enormous financial risk to a program that is almost $20 billion in debt, and could ultimately lead to taxpayers providing subsidized coverage to homeowners in high-risk coastal areas,” she said.

One area where all parties seem to agree is that the status quo of temporary extensions was unsustainable. H.R. 4851, the Continuing Extension Act of 2010, which was signed into law by President Obama last week, only extends the NFIP until April 30, 2010.

“In a time of continued economic difficulty, the last thing that a consumer who is about to purchase her first home or a small businessman about to open a new location needs to worry about is whether Congress will pass another last minute extension of flood insurance,” Charles Symington, SVP for government affairs for the Independent Insurance Agents & Brokers of America said in written testimony. “We cannot emphasize this enough—our members and their customers are completely bewildered by Congress’ continual use of these short-term extensions for such a vital program, and they call on Congress to step up to the plate and pass a long term extension.”