By Kellie Bray
Assistant Vice President, Federal Affairs
PIA National

On March 16, The House Financial Services Committee approved H.R. 4973, a bill overhauling the federal flood insurance program.  This comes on the heels of back-to-back years of extraordinary hurricanes, including Hurricanes Katrina and Rita that caused the most costly damage in history.

Later that same day, the Senate approved by voice vote legislation allowing NFIP to borrow up to $20.8 billion from the Treasury, up from the current ceiling of $18.5 billion. The House had already passed the increase.  These twin actions coming on the same day illustrate the interplay between the need to pay the extraordinary claims resulting from the storms of 2005, along with the need to enact common-sense reforms to our nation’s flood insurance program.

‘Dribs and Drabs’

Over the past year, a sentiment developed in Congress that these additional funding requests coming from FEMA could be held hostage as a means of spurring legislative action on reform proposals.  While this kind of legislative brinksmanship is not an unknown tactic on Capitol Hill, PIA has pointed out that, in this case, it is not something that Congress can do simply because it is Congress.

In the case of the National Flood Insurance Program, the federal government is in fact the insurer.  No insurer is allowed to withhold the payment of valid, current covered claims from insureds simply because changes are being made to how a program will be run in the future.

The House Financial Services Committee agreed with PIA’s point, and published a statement on its website noting that should the NFIP run out of money needed to pay the estimated 225,000 claims related to Hurricanes Katrina and Rita, homeowners whose claims are not paid could initiate legal action against FEMA.

PIA Senior Vice President Patricia A. Borowski notes that “it would be better if this funding was not being parceled out incrementally in dribs and drabs, but at least there is a growing realization that not paying valid claims to flood victims insured under NFIP is not an option.”

“The stopgap increase in borrowing authority approved by the Senate along with the comprehensive reform package passed by the House Financial Services Committee gets things moving in the right direction,” Borowski said. “We are pleased to see that finally, the issue of funding to pay for current policyholder claims has been separated from the consideration of reforms — at least, it appears to have been separated.”

PIA urges President Bush to sign the increase, and then the full House and the Senate should proceed to address reforms.

Needed Reforms

Many of the reform provisions in H.R. 4973 mirror proposals submitted by PIA on October 20, 2005 to the House Financial Services Committee and the Senate Banking Committee. These include an increase in building property insurance limit maximums and minimum training and education requirements for insurance agents. In addition, the Flood Insurance Producers National Committee (FIPNC), of which PIA is a founding member and serves as rotating chair, has also taken a leadership role in advancing NFIP reform proposals.

As legislation progresses through the House and Senate, PIA continues its work to reform the current system in order to protect consumers from future events as well as seek additional program solutions and improvements.

In the 1960’s, PIA led successful efforts to create a federal insurance program providing needed flood coverage for homes and businesses. The National Flood Insurance Program (NFIP) was created as part of the National Flood Insurance Act of 1968 to enable the federal government to help cover the cost of flood damages.  Prior to that time, insurance companies generally did not offer coverage for flood disasters because of the high risks involved.

The NFIP is virtually the only way for people to protect against the loss of their home or business due to flooding.  It is crucial that this program be efficient and properly managed to best serve consumers and the insurance industry.

Kellie Bray kelliebr@pianet.org is Assistant Vice President of Federal Affairs for PIA National.

This article originally appeared in the April 2006 PIA Connection.