The National Association of Mutual Insurance Companies called on Congress to provide homeowners and businesses with greater and more affordable protection from flood losses through a stronger and more financially stable National Flood Insurance Program.
NAMIC submitted testimony to the House Financial Services Committee Subcommittee on Housing and Insurance for the hearing “How Do We Encourage Greater Flood Insurance Coverage in America?” The association encouraged lawmakers to extend the program on a long-term basis and enact meaningful reforms while exploring ways in which the private market can support the federal government program, which currently accounts for 93 percent of the market.
“Since the end of fiscal year 2017, the NFIP has had twenty-five short-term reauthorizations,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC. Avoiding a lapse in the program’s authorization is crucial for policyholders, he said, because “reauthorizing the program on a long-term basis is essential to providing certainty and stability to the millions of policyholders and the many sectors of our economy that rely on a functioning NFIP.”
NAMIC also urged Congress to address the many issues that have plagued the NFIP, leaving it unable to exist without a steady stream of taxpayer-funded bailouts, the main cause of which, Grande said, is the program’s inadequate rates in flood-prone areas.
“There has been a substantial population increase in flood-prone coastal states, which now account for a very large portion of the NFIP’s portfolio,” he said. “One reason for the population increase in flood-prone areas is that NFIP subsidies mask homeowners’ true flood risk. Masking risk also results in residents not taking necessary mitigation measures or utilizing resilient construction techniques, which leave them even further exposed to risks associated with flooding.”
Recent implementation of the Federal Emergency Management Agency’s Risk Rating 2.0 system represents the largest overhaul of the NFIP since the program’s inception in 1968. The risk-based pricing methodology is more accurate and tailored to risk and will rate every home on an individual basis, instead of outdated and often inaccurate flood maps. Increases to premiums should be phased in to avoid an affordability crisis. In cases of true need, NAMIC’s testimony strongly advocated for a program to provide assistance on a needs-based basis that will lead to financial soundness. Equally important, “any subsidies offered must be fully transparent rather than hidden within the insurance mechanism” as simply lower rates, Grande noted. “Homeowners should be fully aware of the real risks of where they live.”
Another point of emphasis in this evolving and timely conversation is pre-disaster mitigation. NAMIC suggested that Congress consider taking steps toward changing the resilience trajectory for many communities by including in NFIP reauthorization legislation tools to facilitate homeowners being better equipped to use modern building codes and undertake retrofits to protect their homes from flood risks.
“The industry serves as a leader in promoting pre-disaster loss-prevention techniques and stands shoulder-to-shoulder with the federal government and emergency responders to help victims recover and rebuild after a catastrophe,” Grande said. “As we have seen in recent years, mitigation efforts are fundamental to reducing risks and therefore to improving the solvency of the NFIP. Mitigation activities would protect homeowners’ property and possessions, as well as reduce the costs of claims associated with the NFIP.”
Today’s hearing was an important first step toward coming to a bipartisan, win-win solution for NFIP, and NAMIC looks forward to working together with Chair Warren Davidson, R-Ohio, ranking member Emanuel Cleaver, D-Mo., and committee members on this important endeavor. Leveraging the private market to take pressure off the NFIP will ultimately benefit policyholders and taxpayers alike while increasing coverage and marketplace competition.
Article Posted: 03.10.23
Last Updated: 03.10.23