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In the Works: Bill to Cap Flood Insurance Company Profits

The Big “I” has serious concerns with draft legislation that could impact how agents receive compensation for selling flood insurance policies.
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The Big “I” has serious concerns with draft legislation that could impact how agents receive compensation for selling flood insurance policies.

The “Flood Insurance Reimbursement Standards Transparency Cap Profits Act” by Rep. Frank Pallone (D-New Jersey) is expected to be formally introduced when Congress returns from its election recess. The proposed bill would require FEMA to increase oversight and transparency of the NFIP, and would cap the profits of private flood insurers at 10% annually. Considering how federal limits on insurer profits have impacted agent commission levels for crop and health insurance, this bill would likely have a significant impact on commission levels for flood insurance agents.

Biggert-Waters required FEMA to review the finances of private flood insurers, and the Pallone draft codifies that directive by requiring FEMA to develop a methodology for determining the insurer’s reimbursement rate. The draft legislation would require that any methodology include a 10% cap on insurer profits and give FEMA 90 days from the date of enactment to submit the final methodology.

If FEMA does not submit the methodology or issue the final rule within the directed timeframes, default provisions would take effect until the final rule has been issued or the methodology submitted. These provisions state that FEMA must withhold any and all payments and reimbursements to the WYO carriers and that the direct servicing agent should adjust any claim which occurs under a WYO-issued policy.

The NFIP is set to expire Sept. 30, 2017 and renewal discussions have been underway for several months. The Big “I” has been at the forefront of these discussions as some policymakers are considering a major overhaul of the program and a significant increase in private market involvement. The association understands that the NFIP will undergo reforms. However, absent a viable private market alternative for current policyholders, the Big “I” will continue advocating for a long-term extension of the NFIP.

While the recently proposed rule from FEMA attempts to address terms for acceptable private flood, the Big “I” believes the “Flood Insurance Market Parity and Modernization Act” is still necessary to further clarify any ambiguity regarding the definition of acceptable private flood insurance, and to enact the continuous coverage language which cannot be part of the FEMA rule.

The Big “I” will continue to educate Congress on the essential role agents play in delivering flood insurance. It will also work to uphold fair agent compensation and ensure that flood insurance agent training is timely, efficient, high-quality and structured in a way that provides the greatest benefit to agents and consumers.

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