Flood Insurance Discussions Continue on the Hill

By: williamjones
November 1, 2013

By: Margarita Tapia

The importance of a well-run National Flood Insurance Program (NFIP) received further attention after a summer of devastating floods in Colorado and other parts of the country. Although the NFIP was extended and reformed last year when Congress passed and President Barack Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters), debate rages on about the details surrounding its implementation.

Biggert-Waters provided a five-year extension of the NFIP, enacting necessary measures meant to decrease subsidies and help make it more fiscally sound. Many of the provisions have already taken effect, but two sections continue to concern industry observers.

In a hearing before the U.S. Senate Committee on Banking Subcommittee on Economic Policy titled “Implementation of the Biggert-Waters Flood Insurance Act of 2012: One Year After Enactment,” Federal Emergency Management Agency Administrator Craig Fugate said sections 205 and 207 of Biggert-Waters will result in substantially increased premiums. Section 205 was fully implemented on Oct. 1, while Section 207 will be implemented in late 2014 at the earliest.

Section 205 phases out explicit subsidies for second/vacation homes, commercial properties, severe repetitive loss properties, properties undergoing substantial improvement, properties experiencing substantial flood damage and rebuild, properties with lapsed flood policies and properties bought and sold. Section 207 stops the “grandfathering” of policies located in communities with a new or redrawn map.

Efforts to delay either of these sections administratively were extinguished when Fugate said FEMA lawyers hold the opinion that they do not have the administrative power to delay a section of Biggert-Waters. Fugate specifically said Congress would need to pass legislation to allow FEMA to delay implementation.

The Big “I” expects additional congressional attention on implementation of section 207 and the “bought and sold” provision in section 205, in particular. The association looks forward to working with Congress to ensure that the flood insurance program works effectively, protecting the millions of consumers who rely on it without adversely affecting U.S. taxpayers. It is also important that any reforms to the program take into account the private sector’s historical inability to underwrite flood risk, as well as the need for flood protection by millions of homeowners and small businesses.

The NFIP protects 5.6 million homeowners and small businesses against the dangers of flood losses. Historically, private insurers have had significant challenges in underwriting this catastrophic risk, especially in the high-risk zones where it is needed most. In today›s market, many of these properties would be left unprotected without the NFIP.

As implementation of Biggert-Waters carries on and congressional concern grows about significant premium increases in certain parts of the country, the Big “I” will continue advocating on behalf of the millions of homeowners, businesses and independent agents who count on the NFIP to protect their homes and livelihoods.

Margarita Tapia is Big “I” director of public affairs.

Big ‘I’ Files Amicus Brief in Housing Case

In September, the Big “I” and other notable p-c insurance trade associations filed an amicus brief with the U.S. Supreme Court, arguing that the Fair Housing Act (FHA) does not authorize disparate impact claims against the insurance industry.

Claims based upon the disparate impact theory of liability allow minority plaintiffs to use statistical data to allege that government or private sector entities have engaged in illegal discrimination, even when a defendant had no intent to engage in any improper practice. The FHA text does not expressly recognize disparate impact claims, but some lower courts and the Obama Administration have maintained they are permissible.

The case—Mount Holly v. Mt. Holly Citizens in Action—originated when a group of New Jersey residents alleged that their town’s plans to demolish homes and redevelop the area had a statistically disproportionate effect on minority groups.

The litigation has taken on more relevance for the insurance community because the federal Department of Housing and Urban Development (HUD) issued a new regulation earlier this year, which formally recognizes the use of the disparate impact claims under the FHA and enables HUD and private plaintiffs to initiate such lawsuits.

HUD specifically indicated that insurers could be liable under this theory for practices related to the provision and pricing of homeowners insurance. The new rule could threaten current homeowners underwriting practices and subject the industry to new legal liability; it also contravenes the McCarran-Ferguson Act and infringes upon state oversight of insurance.

Oral arguments are scheduled for early December. If the Supreme Court rules for the defendants, the threat posed by the new HUD rule will also be eliminated.

The other associations that joined the brief include the National Association of Mutual Insurance Companies, the Property Casualty Insurers Association of America and the American Insurance Association.

—M.T.