Flood Insurance

Reauthorization of the National Flood Insurance Program

PIA supports a long-term reauthorization of the National Flood Insurance Program (NFIP) that recognizes the key role agents play in delivering the program to consumers.

 

The NFIP was established in 1968 to provide property owners in the U.S. with flood insurance coverage for their homes. At the time, the private insurance market treated flood as an uninsurable risk, and, as a result, flood insurance products were either wholly unavailable or prohibitively expensive. In the decades since its creation, the NFIP has remained the nation’s primary source of flood insurance products for homeowners seeking to protect their most valuable assets from the risk of losses posed by floods.

PIA supports the reauthorization of the NFIP because the program continues to provide critical support to those whose properties are at risk of and affected by floods. The NFIP also offers coverage that is more broadly and universally available than the coverage supplied by the burgeoning private market.

The role of the independent agent

 

Independent insurance agents generally serve as the first point of contact for a potential consumer inquiring about flood insurance. Independent agents are essential to assisting property owners in making educated choices about the flood insurance coverage most suitable for their homes and commercial properties.

Buying an NFIP policy can be a daunting process for a consumer; it requires the specialized knowledge of an independent agent, particularly because the purchasing process is so different from that of a standard homeowners’ or auto insurance policy. To achieve and maintain success, independent flood insurance agents must remain up to date on ever-changing laws and regulations governing coverage requirements. Applicable floodplain maps are often revised, and relevant community participation is subject to change with little notice. Independent flood agents must be conversant in the numerous flood zones relevant to their geographic area.

Each Write-Your-Own (WYO) company has integrated the Risk Rating (RR) 2.0 system into its workflows in a unique way, and independent agents must have comprehensive knowledge of each system they work with. Agents must be familiar with the features and limitations of each of their WYOs’ RR 2.0 interfaces.

Finally, agents must be comfortable and familiar with the extensive information-gathering demands of RR 2.0 in the process of generating a quote for a prospective customer’s property.

 

WYO reimbursement and agent value proposition

 

The NFIP pays WYOs by remitting to participating carriers a standard percentage of net written premium; that sum, known as the WYO expense reimbursement rate, is then used to pay for various administrative expenses and, importantly, agent commissions. Any cut to the WYO expense reimbursement rate would force carriers to pass the loss on to agents by reducing their commissions. As always, during the NFIP reauthorization process, PIA will remain vigilant in opposing any attempt to cut the WYO reimbursement rate.

The perils of NFIP “Direct to Consumer” sales

 

Recently, FEMA proposed a direct-to-consumer (D2C) model, through which consumers would be able to buy an NFIP policy online, ostensibly without the agent expertise that undergirds the program. The D2C proposal risks cutting consumers off from agents—the people most capable of giving consumers accurate information about flood insurance.

 

RR 2.0 requires extensive, specific data to generate a policy quote for a property. Each data point is comprehensively explained in the Flood Insurance Manual, a 400-plus-page guide for writing NFIP policies. D2C presumes that consumers will have somehow acquired the data points themselves and an understanding of the complex rules that govern each one. D2C will confuse all consumers, but the damage will be most concentrated among low-information consumers. D2C purports to be an attempt to improve the consumer experience, but it fundamentally misunderstands the level of information a prospective NFIP policyholder has about their own property.

 

PIA also has other substantial concerns about the perils of implementing a “Direct to Consumer” option, which can be found here. 

Reauthorization

 

The NFIP’s most recent five-year reauthorization expired on September 30, 2017. Leading up to that deadline, the 115th Congress was unable to agree on reforms to the program. As a result, the NFIP briefly lapsed three times. Since the 2017 deadline, the NFIP has been subject to over two dozen extensions of varying lengths, but none has been longer than one year. The program is currently set to expire on December 20, 2024.

 

PIA will continue to urge Congress, at a minimum, to act to protect consumers from the uncertainty associated with even a potential lapse in the program. We will continue to encourage Congress to pass a long-term reauthorization of the NFIP that includes key reforms and recognizes the essential role independent agents play in delivering the program to consumers.

PIA supports the following provisions, should they be included in any long-term reform and reauthorization bill:

  • Maintenance of the WYO reimbursement rate at its current level of 29.9 percent
  • Establishment of continuous coverage protections for policyholders who leave the NFIP to purchase a private flood policy and later return to the program
  • Allowance for policyholders to purchase additional increased cost of compliance (ICC) coverage and to use it for pre-disaster mitigation
  • Allocation of increased funds for new mapping initiatives and mapping updates
  • Continuation of the gradual implementation of actuarially sound rates
  • Institution of claims process improvements
  • Investment in robust agent training curricula for those participating in the NFIP
  • Creation of an Agent Advisory Council

 

As Congress once again considers NFIP reauthorization, PIA will continue to communicate with Congress to ensure that agents’ voices are heard and their invaluable work acknowledged.

For the most up-to-date information on the NFIP and the rest of our advocacy issues, visit and follow the PIA Advocacy blog at www.piaadvocacy.com.