GAO Flood Insurance Report Outlines Private Market Barriers

A new Government Accountability Office (GAO) report cites “regulatory uncertainty” as the main barrier to increased use of private market flood insurance policies. The GAO points to a bill—which the Big “I” supports—as a way to address some of the regulatory challenges facing private flood insurance.

Last week, the GAO released a report, “Flood Insurance – Potential Barriers Cited to Increased Use of Private Insurance.” The report, which Sen. Dean Heller (R-Nevada) requested last year, further demonstrates the need for S. 1679 and H.R. 2901, the “Flood Insurance Market Parity and Modernization Act” by Sens. Heller (R-Nevada) and Jon Tester (D-Montana) and Reps. Dennis Ross (R-Florida) and Patrick Murphy (D-Florida).

The “Flood Market Parity and Modernization Act” explicitly allows private flood insurance to satisfy any continuous coverage requirements, ensuring that policyholders can return to the NFIP without losing their grandfathered status or subsidy if they had previously left the program and obtained coverage in the private market and that coverage no longer meets their needs. This is an important safeguard for consumers and an important errors & omissions protection for agents. The Big “I” also supports this legislation because it clarifies that state regulators have authority over private flood insurance.

The GAO report also noted two additional barriers inhibiting the use of private flood insurance in the NFIP: refunds and market challenges. The report notes recent NFIP changes, including the inability for policyholders to obtain a refund of their unused NFIP premium if they obtained a non-NFIP policy. According to the report, “GAO recommended that FEMA allow policyholders who cancel their NFIP policy to be refunded, on a prorated basis.” The GAO notes that FEMA agreed with this recommendation.

The GAO report also cited market challenges and difficulty competing with the NFIP’s subsidized premium rates as additional hurdles to more private market involvement.

The Big “I” supports a reformed and modernized NFIP, and believes that the private market has a role to play as a complement to the NFIP, not as a replacement to the program. The association believes that flood insurance must be available and affordable to those who need coverage. For the NFIP to regain any sort of solid financial footing, the number of policies in the program must increase. A broader and more diverse risk pool will help stabilize the NFIP, provide consistency within the program and ensure flood insurance is readily available to small businesses.

While 2017 NFIP reauthorization should include examining rate adequacy, Congress must do so with careful consideration in order to avoid market disruption and other unintended consequences—not only for homeowners but also small businesses, which are vital to the stability of the U.S. economy.

Jen McPhillips is Big “I” assistant vice president of federal government affairs.