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The National Flood Insurance Program (NFIP) has been renewed again, this time until September 30, 2019.
The latest extension of this important program came after another round of brinksmanship on Capitol Hill, ending in a familiar way: with Congress waiting until the last minute before the NFIP was set to expire, before providing a late reprieve in the form of a short-term extension.
In this case, it was two short extensions: the first one for two weeks, followed by another for four months. We will spare you a blow-by-blow account of all the legislative moves that extended through much of May.
This pattern has been repeated countless times over the past 17 years, during which there have been two five-year authorizations of the NFIP enacted. The rest of that time, the availability of flood insurance for most property owners have operated on countless short-term authorizations — except during the handful of times Congress failed to act and the program expired for days or even weeks.
History of Program
In the 1960s, PIA (then known as the National Association of Mutual Insurance Agents) led successful efforts to create a federal insurance program providing needed flood coverage for homes and businesses. In fact, PIA members wrote the first 100 policies sold under the National Flood Insurance Program.
The need arose because carriers basically decided that insuring flood risk at affordable rates was not possible and for the most part stopped providing private flood insurance policies in the market. Flood was widely viewed as an uninsurable risk.
Congress was looking for a way to help people by providing a low-cost insurance product, underwritten by the federal government, that would respond to any flooding event — regardless of how local or widespread. It also stated in the enabling legislation that the purpose of the program was to “provide flexibility in the program so that such flood insurance may be based on workable methods of pooling risks, minimizing costs and distributing burdens equitably among those who will be protected by flood insurance and the general public.”
For many years, other than a short period during the 1980s, the program was self-funded, earning about as much in premiums as it paid out in claims. Then Hurricanes Katrina, Rita and Wilma caused billions of dollars in flood damage in 2005 and plunged the NFIP about $19 billion into debt. Seven years later, Hurricane Sandy added another $7 billion in debt.
Congress permits the NFIP to borrow a limited amount of money from the Treasury when the NFIP runs out of money, and Congress has had to raise the NFIP’s debt limit several times.
As a result of the NFIP’s growing debt, some lawmakers started to believe that the general public shouldn’t bear as much of the burden of flooding and that the owners of at-risk properties should pay more. Members of Congress thought they should try to move the NFIP to more “actuarially sound” rates.
Of course, the inability of consumers to pay “actuarially sound” rates is what prompted carriers to exit this market all those years ago. Nevertheless, Congress tried anyway.
First came the Biggert-Waters Flood Reform Act of 2012 (BW-12). The resulting movement toward actuarial rates meant consumer premiums increased dramatically. Consumer reaction was swift and powerful, prompting Congress to reverse several of the bill’s provisions through the Homeowners Flood Insurance Affordability Act (HFIAA), passed in May 2014.
Members of Congress can’t seem to agree on a path forward to reform the NFIP, keep it going long-term, and encourage the development of private flood markets because they have a basic philosophical difference over just what the NFIP should be.
To characterize the money that the NFIP needs to secure over and above what it collects in premiums to pay for flood damage as a “debt” to the federal government is a misnomer. The federal government owes this money to itself, because the federal government does not want to provide the increased level of relief to homeowners that is increasingly needed because of the greater frequency and severity of destructive weather in recent years.
The “debt” of the NFIP is, essentially, the disaster relief funds that Congress does not want to appropriate, so they call it something else. Having a federally-backed entity pay interest on this debt back to the federal government completes this circular sleight-of-hand. It makes no sense.
The Path Forward
The solution to this conundrum, while possible, has several elements. An honest first step would be to forgive the rest of the so-called NFIP debt (Congress forgave $16 billion of it recently). The move to actuarially sound rates should continue, but very slowly and very carefully, with grandfathered rates preserved. You need only look at the pitiful take-up rates of flood insurance in many at-risk areas to see that raising rates significantly and increasing take-up rates can end up being mutually exclusive.
The purchase of reinsurance by the NFIP needs to be expanded and accelerated. We need to continue to encourage the development of a private flood insurance market, with strong consumer protections being overseen by state insurance regulators.
Critical to the success of any reformed flood insurance market is the NFIP, which should be reauthorized for no less than five years, preferably ten. Independent insurance agents and WYO carriers must be kept fully engaged, and no further cuts to their compensation should be considered.
The need for flood insurance is far greater now than it ever has been, because there is far more flood damage with the prospect of even more in the coming years. But all the elements are in place for a broad, bipartisan effort to address this issue long-term. Let’s do it.
Ted Besesparis is senior vice president of communications of the National Association of Professional Insurance Agents (PIA National) based in Alexandria, Va. He can be reached at firstname.lastname@example.org.
PIA Objects to Two-Week Extension of the National Flood Insurance Program
WASHINGTON — The National Association of Professional Insurance Agents (PIA National) expresses deep disappointment that Congress has now put the National Flood Insurance Program (NFIP) on the brink of lapse at the beginning of hurricane season, due to an objection to two bills in the House of Representatives. The House is currently out of session but can pass legislation in pro forma session using unanimous consent if no members object. A recorded vote cannot take place until the House returns next week.
Late last week, Rep. Chip Roy (R-TX) objected to the unanimous-consent passage of H.R. 2157, disaster relief legislation that also includes a 4-month extension of the NFIP. The bill was brought up again today, and Rep. Thomas Massie (R-KY) objected and demanded a recorded vote.
In addition, the House leadership today tried to pass S. 1693, the standalone legislation that would provide a two-week extension of the NFIP, which will expire this coming Friday, May 31, unless Congress acts to extend it; this bill passed the Senate last week. Unfortunately, the House GOP objected to this as well, and also demanded a recorded vote.
“PIA is disappointed by the objection to a simple, two-week extension of the program. Putting consumers and our nation’s economy at risk for political gamesmanship is unconscionable,” said Jon Gentile, vice president of government relations for PIA National. “One only need look at the recent devastating flooding in the Midwest to know how high the stakes are for homeowners. Putting the NFIP on the brink of lapse right at the beginning of hurricane season displays, at best, indifference and, at worse, a callous disregard for the seriousness of flooding events.”
Consumers are unable to renew existing policies or purchase new flood insurance policies during a lapse; however, claims can be paid on existing, in-force policies. Many consumers engaged in real estate transactions may experience disruptions because of a lapse, with home sales in which the purchase of flood insurance is mandatory put on indefinite hold. If flooding events occur during a lapse, some claims will not be processed until the program is reauthorized. Prior NFIP lapses are estimated to have caused disruption in over one thousand home sales per day, and the longer the lapse, the greater the disruption.
“The gamesmanship needs to come to an end and the House must be allowed to pass an extension of the NFIP on a voice vote before it expires this Friday. Congress must then get serious about providing a long-term reauthorization of the program to avoid such spectacles,” Gentile said.
PIA calls on Congress to pass an extension of the NFIP immediately.
Climate change, hurricanes, rising sea levels, floods. Today’s news sounds positively biblical, and consumers are looking for answers — and reassurance. That’s why insurance agents today need the latest information and technology to provide their customers with the solutions and peace of mind they need. Here’s what you need to know:
What constitutes a flood, exactly?
To be classified as a flood, two or more acres of normally dry land or two or more properties must be inundated by water or mudflow. Floods are the U.S.’s most common natural disaster and just “one inch of water in a home can cost more than $25,000 in damage.” (The average loss in a flood is $46,000.)
Who’s at risk?
Short answer: potentially everyone. Some are just at a higher risk than others. Given the changing climate, floods now occur in all 50 states and every month of the year. Since 2014, there have been major floods in New York, Missouri, Oklahoma, Louisiana, and the Ohio River Valley, to name a few of many.
FEMA isn’t keeping up
FEMA is mandated to produce maps of areas at high risk of flooding. If your home is in one of these high-risk areas, you are required to carry flood insurance. However, FEMA’s flood zone maps are often outdated and inaccurate.
Even if the FEMA map says your home is in a low-risk zone, your actual risk of flooding may be significantly higher. In Hurricane Harvey in Houston in 2017, for instance, approximately 82% of those who suffered losses were in areas not considered at high risk of flooding, and at least 25% of all flooding happens outside “high hazard” areas.
Standard homeowners’ policies don’t cover floods
Although there are federal and private markets for flood insurance — the NFIP has 89% of the market — NFIP policies have low coverage limits and don’t cover external structures, replacement cost, or temporary living expenses if a flood forces the homeowner from her home. Consumers also probably don’t realize that when FEMA comes in behind a flood and offers assistance funds, these are often not gratis. They are either low dollar grants that don’t cover all your losses, or government loans that must be repaid.
As an agent, it’s a smart move to protect your errors and omissions (E&O) by offering a flood insurance quote along with every homeowner’s quote.
What can agents do?
Don't let your customers go underinsured and misunderstand what coverages they need.
Make sure consumers read their policy from top to bottom, so they know how and where claims would be processed. In the event of a loss they need to be confident the settlement will be paid in full and on time. They should also understand the difference between replacement costs and actual cash value in regard to their insurance.
Take advantage of the optional coverages such as Temporary Living Expense, and Replacement Cost on Contents. These simple options make a huge difference in the homowner's experience if they have a flood at their property.
Most of all, agents need to be able to reassure their customers that they are in good hands. By knowing the facts yourself, you can inform consumers about what they need and match their needs to the right product.
Growers are increasingly weighing how best to get paid and ease the impact from the bad weather and an escalating U.S.-China trade war.
(Bloomberg) — Kansas farmer Mark Nelson has a day to plant his corn or lose the insurance that protects him from a drop in prices or yield.
Instead, he’s hopping on a plane to visit his father in Chicago.
Nelson is now considering a different type of insurance coverage known as prevented-plant claims, which pay out when farmers are unable to sow crops at all. With unceasing rain keeping farmers out of fields, growers are increasingly weighing how best to get paid and ease the impact from the bad weather and an escalating U.S.-China trade war.
“You hate to farm for insurance, but in a year like this, you keep that in the back of your mind,” Nelson, whose farm is near the east-central town of Paola, said by phone.
Storms across the Midwest and Great Plains have resulted in the wettest 12-month stretch on record in the U.S., with the deluge closing refineries and snarling Mississippi River traffic. Crucially for agriculture markets, it’s also hampered crop planting. Worries over tighter supplies due to the soggy weather drove Chicago corn futures to surge as much as 3.9% on Friday, topping $4 a bushel and rising to the highest level in almost a year.
The wet weather’s showing no signs of easing, and the insurance deadline for sowing has already passed for some farmers in southwestern Missouri, southeastern Kansas and western Tennessee. They now have to decide whether to plant with less coverage, or make prevented-plant claims.
Further complicating matters is President Donald Trump’s announcement on Thursday that farmers could apply for a slice of a $16 billion aid package to mitigate the impact of the U.S.-China trade war. However, in order to qualify, farmers must plant crops. Then, payments will depend on production in the their county.
The Senate also passed a $19.1 billion natural disaster relief package that includes $3 billion related to the loss of crops in recent hurricanes, flooding and for seeds prevented from planting this year. A Republican House member temporarily blocked fast-track passage, meaning lawmakers will probably vote when they return in early June from a week-long recess.
On July 31, the U.S. Senate joined the House in passing a four-month extension of the National Flood Insurance Program (NFIP), to Nov. 30, 2018. President Trump quickly signed the measure into law. As a result, a lapse of the NFIP was averted by a matter of hours.
Millions of Americans woke up on July 31 not knowing whether congressional inaction would leave the flood insurance program they rely on hobbled in the height of hurricane season. The passage of a clean extension is positive. That said, waiting until the last minute to act should be a thing of the past. Congress now has four months to work to find a way to provide a long-term re-authorization of the program. That work should begin today.
PIA has been actively working with Congress for more than a year to encourage the long-term re-authorization of the National Flood Insurance Program (NFIP) with needed reforms. However, as both the expiration deadline and the height of the Atlantic hurricane season approached, PIA endorsed a “clean” extension of the program for as long as possible, to allow lawmakers time to continue to find areas of agreement on important reforms.
The history of NFIP extensions is a long one. The program was extended 17 times between 2008 and 2012 when the previous five-year re-authorization was signed into law. The program lapsed four times in 2010 and 2011, once for more than a month.
Difficult to find agreement
The tendency for Congress has been to postpone action on flood insurance absent agreement. It’s a tough issue to resolve. Allowing the NFIP to expire can never be an option, but multiple short-term extensions and short lapses in the program mean the real work of reform has yet to be done.
In late 2017, the House did pass a bill, the 21st Century Flood Reform Act (H.R. 2487). This bill would provide a five-year re-authorization and includes PIA-supported reforms, such as overhauling the flood mapping process, allowing the use of more precise risk-assessment tools to determine premiums, and creating an appeals process for local governments or homeowners to challenge federal mapping decisions. Many of these items will benefit consumers and strengthen the future viability of the program.
PIA ultimately opposed H.R. 2487 because of a short-sighted provision that would lower something called the Write-Your-Own (WYO) reimbursement percentage by two or three points. This reimbursement is used by carriers to pay administrative expenses as well as agent commissions, among other costs. Under such a scenario, carriers would likely be forced to pass any cut to the WYO rate on to agents through their commissions. Needless to say, for PIA such a provision was — and continues to be — a deal breaker.
Congress has voted itself another four months to come up with a long-term re-authorization of the NFIP with bipartisan reforms. It is more than possible. PIA will continue to work with lawmakers to find common ground on reforms in a re-authorization of the program that recognizes the key role independent agents play in delivering it to homeowners and business owners.
The private flood market is growing and profitable, according to Insurance Journal’s recent report on “Top Private Flood Insurances, 2017 Market Study.” Here are the top six facts from the report.
– 1 – During 2017, the private flood market expanded considerably with 50 new companies reporting to the NAIC as writing private flood coverage. In total, insurers reported direct private flood insurance premiums written of $630 million, an increase of $217 million over 2016.
– 2 – Though the flood insurance market saw many new entrants in 2017, 98 percent of the growth was attributed to five major carrier groups: Assurant, Zurich Re, FM Global, Liberty Mutual and Berkshire Hathaway.
– 3 – The 2017 top five writers of direct written premium for private flood insurance in the commercial market were: FM Global ($263,281,599); Zurich Re ($63,839,162); Berkshire Hathaway ($27,603,275); RSUI ($13,224,505); and Allianz ($11,704,696).
– 4 – The 2017 top five writers of direct written premium for private flood insurance in the residential market were: Assurant ($89,826,939); AIG ($58,245,862); Swiss Re ($41,571,428); Chubb ($9,977,894); and Liberty Mutual Fire ($8,849,770).
– 5 – In 2017, 10 states experienced private flood insurance growth in excess of $5 million in new business written. These states represent 63 percent of all business written in 2017 – Florida; California; Texas; New York; New Jersey; Ohio; Louisiana; Massachusetts; Pennsylvania; and Georgia.
– 6 – The private flood insurance market has been making significant in-roads during the past year when compared against the National Flood Insurance Program (NFIP). As of March 2018, NFIP premiums written reached $3.55 billion, an increase of $11 million over March of 2017. Combined, surplus lines premium and direct private flood insurance premiums written increased $250 million to $1.028 billion, gaining 22 percent of the overall market.
For many in the insurance industry, the state of the National Flood Insurance Program (NFIP) has long been a cause for concern. While some may dispute the best remedy for the debt-ridden federal program, insurers should note that change is coming.
The NFIP provides critical flood coverage to more than 5.2 million property owners across the country, according to SmarterSafer.org, a national coalition of taxpayer advocates, environmental groups, insurance interests, housing organizations and mitigation advocates.
Twice a year, the NFIP implements program changes. Some changes will become effective on or after April 1, 2018, while others go into effect at the start of 2019.
What will change
Effective Jan. 1, 2019, the following changes, among others, will go into effect:
Preferred Risk Policies (PRPs): Premiums will increase 8%, with a total increase of 6%
Properties Newly Mapped into the special flood hazard area: Newly mapped policies are initially charged PRP premiums during the first year following the effective data of the map change. Annual increases to these policies result from the use of a “multiplier” that varies by the year of the map change; this multiplier is applied to the base premium before adding the increased cost of compliance (ICC) premium.
As a result of the increases to the multiplier, premiums for newly mapped policies will increase 15%, with a total increase of 11%.
What won’t change
For policies issued on or after April 1, 2018, there will be no changes to the following:
Federal Policy Fee
Reserve Fund Assessment
Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) Surcharge
The flood insurance market is full of complexities, but it’s up to insurers to understand the market. A complete guide highlighting the changes to the NFIP can be found on Aon National Flood Services’ website.
Changing the conversation
In 2017, extreme weather increased in frequency and caused billions in losses. For example, Hurricane Harvey generated severe inland flooding and “changed the conversation from being a major hurricane to a major flood event,” according to Dr. Holly Widen, severe weather/climate researcher for RMS, during a live Twitter chat hosted by PropertyCasualty360.com and RMS, a catastrophe modeling firm.
Just like Hurricane Harvey changed the flood conversation, communication to potential policyholders needs to change as well. Matt Nielsen, senior director, governmental and regulatory affairs, RMS, tweeted that homes should be evaluated by risk levels rather than if they’re “in” or “out” of a flood zone.
Change will be a major driver that will help the private market for flood insurance grow. Swiss Re tweeted that “improved technology and more state level flood filings” will help the market prepare for floods.
Continue to follow the conversation and stay up to date on what’s happening with flood insurance by following #PC360Flood or #RMSFlood on Twitter.
While spring brings the promise of warm weather and longer days, it also brings a variety of conditions that can include heavy rains, severe weather, and rapid snowmelt that can increase your flood risk. Don’t be caught off guard. Get the facts. Know the risks. Take action to protect yourself, your family, your business, and your finances—before a weather event occurs and it’s too late.
SPRING FLOOD RISKS
Spring Thaw. Warmer temperatures and resulting snow melt can produce large amounts of runoff in a short period of time, as each cubic foot of compacted snow contains gallons of water. During the early spring, frozen land prevents melting snow or rainfall from seeping into the ground. The water then runs off the surface and flows into lakes, streams, and rivers, causing excess water to spill over their banks. Add seasonal storms to the mix, and the result is often severe spring flooding.
Spring Rains. Spring storms can bring several inches of precipitation in just hours or can stall out over an area for days. These heavy rains can lead to severe flooding by oversaturating the ground, overfilling storm drains, or causing rivers to spill over their banks or levees.
Flash Flooding. A flash flood is a rapid flooding of low-lying areas in less than six hours, which is caused by intense rainfall from a thunderstorm or several thunderstorms. Flash floods can also occur when there are drought-like conditions.
Levees and Dams. The U.S. has thousands of miles of levees and dams that are designed to protect against a certain level of flooding. These structures can erode and weaken over time, and they can also be overtopped—or even fail—during larger flood events.
KNOW YOUR RISK
Everyone is at risk for spring flooding, yet many remain unprotected. Just a few inches of water can cause tens of thousands of dollars in damage. Between 2006 and 2010, the average flood claim was nearly $34,000. That’s more than many survivors can afford to pay out of pocket for damages due to flooding, and without flood insurance, many must cover the costs to repair or rebuild on their own. Consider your risk and the consequences of a flood event, and make the choice to protect yourself.
BE FLOODSMART – REDUCE YOUR RISK
A flood does not have to be a catastrophic event to bring high out-of-pocket costs, and you don’t have to live in a high-risk flood area to suffer flood damage. Around twenty percent of flood insurance claims occur in moderate-to-low-risk zones. Property owners should remember:
The time to prepare is now. Visit ready.gov/floods for more on family preparedness for flood
and other emergencies. There are a number of steps individuals and families can take to better
prepare themselves for flooding and reduce their risks. Remember to have a family evacuation
plan, put an emergency kit together, and keep important papers and valuables in a safe, dry place. Gather supplies in case of a storm, strengthen your home against damage, and review your insurance coverages.
Only flood insurance covers flood damage. Most standard homeowners policies do not cover flood damage. Remember: it typically takes 30 days for a new flood insurance policy to go into effect, so get your policy now. Flood insurance is also affordable. An average flood policy costs around $600 a year, and rates start at just $129 a year for homes in moderate-to-low-risk areas. Visit floodsmart.gov (or call 1-800-427-2419) to learn more about individual flood risk, explore coverage options, and to find an agent in your area.
Before A Flood
Practice your family emergency plan. Plan and practice flood evacuation routes from home, work, and school that are on higher ground.
Go to higher ground. Get out of areas subject to flooding, including dips, low spots, washes, etc.
Avoid areas already flooded, especially when water flows fast. Do not attempt to cross flowing streams. Just six inches of moving water can knock you off your feet.
Never drive through flooded roadways. Roadbeds may be washed out under flood waters and just two feet of moving water can sweep an SUV off the road.
After A Flood
Check for damage. Check for structural damage before re-entering your home. If you suspect damage to water, gas, electric, or sewer lines, contact authorities.
Remove wet contents immediately. Wet carpeting, furniture, bedding and any other items
holding moisture can develop mold within 24 to 48 hours. Clean and disinfect everything touched by floodwaters.
Plan before you repair. Contact your local building inspections or planning office or your county clerk’s office to get more information on local building requirements.
File your flood insurance claim. Be sure to provide: the name of your insurance company, your policy number, and contact information. Take photos of any water in the house and damaged personal property. Make a detailed list of all damaged or lost items.
Following the devastating 2016 and 2017 hurricane seasons, FEMA followed four NFIP policyholders who experienced flood damage during Hurricanes Harvey, Irma, or Matthew and are rebuilding safer and stronger with the funds from their NFIP claims.
Rupi Prasad purchased flood insurance for peace of mind during her retirement years. With help from the NFIP, she’s now rebuilding after Hurricane Harvey.
Posted By Shawn Moynihan,
Wednesday, April 4, 2018
FEMA News Photo
If a new study led by the University of Bristol is to be believed, 41 million Americans are at risk from flooding rivers, according to phys.org. That’s more than three times than the current estimate of 13 million people.
The Bristol study is based on a new high-resolution model that maps flood risk across the entire continental U.S., whereas the existing regulatory flood maps produced by the Federal Emergency Management Agency (FEMA) cover about 60% of the continental U.S.
The increase in numbers of those at risk is a result of the expanded coverage of the map combined with its ability to estimate flooding on small streams — something that wasn’t adequately captured in previous flood-risk models, according to the study’s researchers.
The 41-million estimate does not include the millions of additional Americans that are at risk of coastal flooding — and the study predicts that more than 60 million Americans may be vulnerable to a 100-year flood by 2050.
While it does make a terrific NU headline to state that U.S. flood risk is far greater than FEMA would suggest, is the situation as really as dire as it sounds? Should the findings of a research team at a U.K. academic institution to be given enough credence to change the way insurers — and the buying public — perceive flood exposure in the U.S.?
PropertyCasualty360.com reached out to Peter Bingenheimer, Senior Vice President of the Consulting and Clients Service Group at AIR Worldwide, a leading provider of catastrophe risk modeling software and consulting services. (Bingenheimer works with AIR’s U.S. insurer, insurance broker, and reinsurance broker clients.) He commented on the findings of the study but not the validity of the study itself, since AIR has not performed a thorough review of the underlying model or methodology.
We asked, what might the Bristol report mean for the way the P&C industry should view flood exposures in the U.S.? Are FEMA’s previous models really that reliable?
Historically, Bingenheimer explained, FEMA maps are the standard by which flood exposure is measured in the U.S.: By and large they’re of very good quality, and an excellent benchmark. FEMA flood maps, he noted, have many strengths: They take into account a great deal of granular local data, but they do have their limitations in terms of “variation in their vintage” (a turn of phrase I now plan on employing whenever possible) and consistency in how they’re developed. Geographically speaking, he added, they do possess some gaps.
“We’re now at an inflection point where science and data and technology can create better models than ever before, more complete, consistent views of risk at scale,” Bingenheimer stated.
That said, he added the Bristol study’s findings are directionally consistent with AIR’s own research, that “there is substantial risk beyond the FEMA flood maps, broadly speaking, consistent with what we observe.”
While the Bristol report won’t necessarily spur more major studies by U.S. modelers in the near future, he said, “it’s indicative of what you can expect to see more of” in years to come.
In other words, just because U.S. cat modelers use FEMA as a benchmark doesn’t mean they believe the level of flood risk is what FEMA says it is. And the Bristol report does much to illustrate how much further research needs to be done on this side of the pond.
The biggest takeaway from all this for insurers? “The findings of this report underscore a major opportunity that’s in front of the industry, because it highlights how much property is uninsured,” Bingenheimer added.