House Holds Hearing on Flood Insurance Reform

This week, the Big “I” submitted testimony to a full committee hearing which examined the NFIP and several legislative proposals aimed at reforming the program.

The U.S. House of Representatives Committee on Financial Services held the hearing, “Flood Insurance Reform: A Taxpayer’s Perspective.” The testimony—drafted by the Big “I” and signed by other insurance agent associations—expressed strong opposition to lowering and capping the amount of compensation insurers can receive for participating in the NFIP WYO program.

The current WYO reimbursement rate is 30.9%. But draft legislation—the “NFIP Integrity Improvement Act,” which Congress is currently considering as part of a broad NFIP reauthorization package—has proposed to cap it at 25%.

The Federal Insurance and Mitigation Administration derives the current 30.9% expense ratio on an annual basis from an average of five private industry property-casualty expense ratios, giving consideration to the complexity of the NFIP. Agent commissions are not paid directly by the government; instead, WYO companies pay them from the expense allowance. WYO companies negotiate compensation rates in private contractual agreements with independent insurance agencies based on the company’s business model.

The Committee’s proposed 25% cap on expenses was not derived from a specific methodology. The Big “I” testimony also pointed out that such a dramatic cut to the WYO reimbursement rate would leave WYO companies no choice but to dramatically cut agent and broker commissions, resulting in fewer agents and brokers willing and able to sell and service flood insurance. Some WYO insurers have also suggested they would leave the NFIP if the final bill includes such a cut, which would limit consumer access to qualified expert assistance when purchasing flood insurance.

The Big “I” has been leading the charge in opposing cuts to the WYO reimbursement, which would directly impact Big “I” members. The association is preparing to launch a grassroots campaign to oppose the cuts if changes are not made.

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