This week, the U.S. House of Representatives passed H.R. 2874, “The 21st Century Flood Reform Act,” introduced by Rep. Sean Duffy (R-Wisconsin). The product of negotiations between House Financial Services Chairman Jeb Hensarling (R-Texas) and Majority Whip Steve Scalise (R-Louisiana), this bill reauthorizes the NFIP for five years and makes several reforms to the program.
One of the biggest concerns for many members of Congress was the bill’s treatment of “repetitive loss properties.” The agreement struck by House leadership changes treatment of these multi-loss properties. If a policyholder files two claims on a property, their premium will increase 10% annually. After a third claim, the rate will increase 15% annually until full risk rates are met. The negotiated compromise also delays another provision that would exempt commercial properties from mandatory coverage requirements until 2019.
The bill still includes a reduction in the WYO reimbursement rate from 30.9% to 27.9%, phased in over three years and offset by lower administrative costs of 1.5% over the same timeframe. While the Big “I” is disappointed that this language was included in the legislation, the original bill included a much deeper cut to the WYO reimbursement rate, which would have had a greater impact on agent commissions. Along with the three property-casualty insurer associations (AIA, NAMIC and PCI), the Big “I” originally opposed the legislation and negotiated with leaders on the House Financial Services Committee on improvements to the WYO reimbursement language. The negotiated changes will save agents millions of dollars in compensation if passed into law. As a result of these changes to the WYO reimbursement rate, the Big “I” shifted its position on the bill from “opposed” to “neutral.”
Additional reforms in the package include an increase in the minimum annual premium increase for properties not at full risk rate from 5% to 6.5%, but a reduction in the maximum annual premium increase for any single property from 18% to 15%; a $10,000 cap on any NFIP premium on a residential property; clarification that a private flood policy can satisfy the mandatory purchase requirement for flood insurance, including on Federal Housing Administration-insured mortgages; and continuous coverage language that protects policyholders and is also an important errors & omissions protection for agents.
The NFIP is set to expire on Dec. 8, 2018. The bill now heads to the U.S. Senate, which will decide whether to take up the House version of the bill or work on its own reauthorization legislation. Stay tuned to News & Views for updates.
Big “I” staff prepared a summary of the legislation, available on the Big “I” website (members must be logged in to view).
Jen McPhillips is Big “I” vice president of federal government affairs.