WASHINGTON (MARCH 11, 2011) The National Flood Insurance Program (NFIP) will continue to be a burden on the taxpayers, and likely grow worse, if congress fails to enact key reforms, Sandra Parrillo, chairman of the National Association of Mutual Insurance Companies (NAMIC) testified before a House subcommittee today.
The NFIP is “in need of significant reform in order to continue providing flood protection,” for the more than 5.5 million policyholders in the program, Parrillo told the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity. In its current form the NFIP is not actuarially based, she said, meaning the rates being charged to policyholders don’t reflect the flood risk facing their property.
“The NFIP must begin charging risk-based rates if it is to have any chance of being a solvent program; these rates should reflect the true cost of providing coverage,” Parrillo said. Recognizing that actuarial rates may be difficult for some homeowners, she cautioned that efforts to assist them should be done separately from the NFIP itself. “Any subsidies that the government believes are necessary must be independent of the NFIP and fully transparent,” she said. “Subsidies cannot continue to be hidden within the insurance mechanism, and homeowners should be fully aware of the real risks and costs of where they live.”
Rep. Judy Biggert, R-Ill, the chair of the subcommittee, has begun work on NFIP reform legislation that mirrors NAMIC’s goals for reform. “We believe that Rep. Biggert’s bill is a significant step in bringing fiscal sanity to the NFIP,” Parrillo said. “She should be commended for her work to strengthen the program and reduce its dependence on the taxpayers’ money.”
In addition to a move towards actuarially-based rates, Parrillo offered strong support to Rep. Biggert’s proposal to update floodplain maps. “Flood maps must be updated based on the best available science, with the goal of ensuring that NFIP flood maps accurately reflect the risks caused by flooding,” she said. “Putting off the adoption of updated flood maps does a disservice to those citizens, property-owners, rescue workers, and land development officials living and working in flood-prone areas who, in the end, risk losing their homes and their lives.”
Additionally, Parrillo called for the NFIP to improve its low take up rate, noting that only 20 to 30 percent of those exposed to flood hazards actually purchase coverage. “The program must take steps to increase these numbers dramatically in order to properly pool the flood risk and achieve financial soundness,” she said.
Rep. Biggert’s proposed legislation would also address the issue of repetitive loss properties, which Parrillo noted have had a disproportionate effect on the NFIP. According to the CBO, “repetitive loss properties,” represent just 1.2 percent of the NFIP portfolio, but account for 25 to 30 percent of total claims paid between 1978 and 2008.
“American taxpayers should not be forced to subsidize a small sub-set of NFIP policyholders who continue to rebuild in high-risk areas,” Parrillo said.
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