New, looser restrictions on private flood insurance are in the offing as Congress considers legislation that would clarify provisions in the National Flood Insurance Program.
The House of Representatives is expected to vote this week to pass the Flood Insurance Market Parity and Modernization Act, which clarifies that privately issued flood insurance policies from the excess and surplus lines market meet the federal requirement for homes in flood-prone areas.
Introduced by Florida Representatives Dennis Ross and Patrick Murphy, the legislation was passed unanimously out of the House Financial Services Committee in March.
Supporters say that in addition to giving consumers greater choice and encouraging a more robust private flood insurance market, the bill also relieves pressure on NFIP, which has been insolvent since Hurricane Katrina in 2005. Currently, the program is $23 billion in debt and rates that are not actuarially sound have done little to correct the deficit.
Lawmakers say that by easing private flood insurance into the market, NFIP would be stabilized, prices would drop and more complete, innovative products would be developed.
The insurance industry has been highly supportive of the bill. Excess and surplus lines trade group NAPSLO has long pushed for the legislation and testified in favor of its passage in January.
“Surplus lines insurance provides an important option for consumers seeking coverage for unique or hard to place risks, including flood risks,” NAPSLO Executive Director Brady Kelly told lawmakers. “NAPSLO supports HR 2901 as it seeks to preserve that consumer option.”
Kelley suggested that as National Flood Insurance Program debt – currently at $23 billion – continues to grow, the pace at which the private market is willing to develop flood insurance programs will be slow. With increased risk and tighter standards from the standard market, consumers whose risks do not fit within the terms and limits of the NFIP will look to surplus lines for solutions.
Specifically, consumers will need alternatives to NFIP policies when: they need higher limits than the $250,000 residential, $100,000 personal contents and $500,000 commercial limits offered by that program; they need enhanced coverage from that offered by the NFIP such as replacement cost of the damaged property rather than the actual cash value of the property, additional sublimits, additional structures or the ability to schedule multiple properties on one policy; or they need additional coverage such as additional living space, basements or business interruption for commercial entities.
With these needs a very real force in the market, Kelley says the new legislation will clarify and strengthen the role of surplus lines insurers in the flood coverage landscape.
“HR 2901 simply preserves the surplus lines market’s ability to solve unique and complex flood insurance risks that exceed or differ from the options available through the NFIP or the standard market,” he said. “NAPSLO’s support for this legislation stems from our desire to preserve that choice for consumers.”