PIA Supports Raising the Borrowing Authority of the NFIP
Consumers Who Bought Flood Insurance in Good Faith Must Have Their Losses from Tropical Cyclone Sandy Covered
WASHINGTON – Congress must raise the borrowing authority of the National Flood Insurance Program (NFIP) in order to pay the valid claims of victims of Tropical Cyclone Sandy, according to the National Association of Professional Insurance Agents (PIA).
Officials estimate the NFIP could receive 143,000 claims from Sandy, totaling as much as $12 billion, and that all available funds could be depleted by the end of November. The NFIP already carries a $17 billion debt from 2005’s Hurricane Katrina which was not addressed in reform legislation passed by Congress this year. The program has $2.9 billion of borrowing authority left, with less than $1 million in cash on hand. Because it is a government entity, the NFIP does not work like traditional insurance companies that are required to maintain adequate funds in surplus or secure reinsurance to pay future claims. Instead, the federal government has chosen to be the insurer of last resort for NFIP flood claims.
The PIA National Government Affairs Committee unanimously supports an expected request from FEMA, which runs the NFIP, for increased borrowing authority to accommodate losses from Sandy. PIA will lobby Congress for such legislation.
“Since Hurricane Katrina and until Sandy, NFIP claims have been managed with no additional request for funds,” said PIA National President Andrew C. Harris, noting that apart from Katrina, the program has generated enough funds to pay ordinary claims. “It is unfortunate that the flood insurance program needs an extra infusion of funds as a result of the devastation of extraordinary catastrophes.”
“Since the National Flood Insurance Program is the insurer and its policyholders suffered damage that was covered under insurance policies that they bought and paid for, the federal government is required to pay valid claims under the NFIP,” Harris said. “Not paying valid claims is simply not an option. The federal government has both a legal obligation and a moral imperative to pay to indemnify policyholders for their covered flood losses in policies backed by the NFIP.”
PIA notes that it is unfortunate that reforms to the NFIP as part of the Biggert-Waters Flood Insurance Reform Act of 2012 and signed into law July 6 by President Obama, designed to put the program on a more firm financial footing, didn’t have time to kick in before Sandy struck. These reforms include eliminating premium subsidies and moving toward risk-based pricing.
“Time is needed to implement these reforms,” Harris said. “Time is also needed by any well run government or private sector insurance program for premium reserves to build up. This requires several years of little or no claims payouts due to minimal flooding events. However if, as in the case with the NFIP, premium reserves are constantly being called on because of a rash of flooding events, then when a really big one such as Sandy hits, reserves will be insufficient. But regardless of this the NFIP, on behalf of the federal government, must continue to respond.”
PIA serves on working groups formed by the Flood Insurance Producers National Committee (FIPNC) and the Institute for Business and Home Safety (IBHS) tasked with accomplishing as many of these reforms as possible for a January 1, 2013 start date.
“Unfortunately, Sandy did not wait for the flood insurance reforms to take full effect,” said Richie Clements, PIA National’s representative to the NFIP. “The additional burden on the federal budget will be hard to handle, but this is a matter of paying people what they are in fact owed under a valid insurance contract that is guaranteed by the federal government.” Clements also serves on the FIPNC and IBHS working groups along with PIA’s immediate past FEMA/FIPNC representative M. Rita Hollada and PIA National Senior Vice President Patricia A. Borowski.
Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. PIA members are Local Agents Serving Main Street AmericaSM. PIA’s web address is www.pianet.com.