Agents Lobby to Renew, Reform National Flood Program

March 26, 2004

Members of the Independent Agents and Brokers of America (IIABA) testified before a Senate committee to make a case for renewal and reform of the National Flood Insurance Program (NFIP).

Bill Stiglitz, an agent with Hyland, Block, Hyland Insurance of Louisville, Ky. and an IIABA elected national officer, testified before the Senate Banking Committee. In his remarks, Stiglitz presented IIABA’s recommendations for five reforms that would improve the program’s solvency and better protect property owners.

In his remarks, Stiglitz reiterated that IIABA supports legislation that would renew the NFIP, which was passed by the House in 2003 and awaits action in the Senate. The House-passed bill—the Two Floods and You Are Out of the Taxpayers’ Pocket Act (H.R. 253)—is undergoing serious review and discussion in the Senate.

IIABA believes the NFIP, which has been self-supporting through premium collections since 1986, does need reforms to address operating losses and make the program actuarially sound, and is advocating five main principles for reform.

They include:

Strengthening NFIP building regulations—Construction requirements should be tightened to ensure that properties are built to minimize potential flood damage and to discourage unwise construction in flood plains.

Providing additional resources for flood-loss mitigation efforts—Funding should be available to help the NFIP buy out repetitive flood-loss properties and also to assist in the structural modification of properties to prevent losses.

Providing additional resources for flood-loss mitigation efforts—Funding should be available that the NFIP can use to buy repetitive flood-loss properties and assist in the structural modification of properties to prevent future losses.

Stopping abuse of the program through multiple claims—While the overwhelming majority of victims of natural disasters bought their homes without any desire to file flood damage claims, the few who do buy high-risk property with intent to file claims are a very expensive minority. Those who file repetitive claims should be considered in a “high-risk, non-classified” system with increased rates and less-than-full guarantees. This provision would boost the financial soundness of the NFIP.

Requiring mandatory disclosures of flood information—Many individuals buy their properties without receiving information about flood risks. Mandatory disclosure of the flood history of properties will help buyers make better-informed decisions, which would keep NFIP from having to pay for artificially over-valued properties.

“One of the best ways to avoid future problems with the NFIP is to give people information about flood risks,” Stiglitz testified. “Reform of the NFIP must include mandatory disclosures of the flood history of the property so that buyers can make an informed choice in their purchases and they can properly value the home. The disclosure also should bring more people into the program by giving them the information about their risks.”

Additionally, IIABA supports provisions in H.R. 253 that would change the NFIP reauthorization period from one year to five years and change the expiration date from the end of the calendar year to another time to avoid having the program expire in conjunction with the adjournment of Congress. In 2002, Congress adjourned without reauthorizing this vital program, leaving it in limbo. While Congress acted swiftly upon its return to renew the program, action is needed to ensure this cannot happen again.

“The hiatus left the industry and more importantly consumers not knowing when or if the program would be reauthorized and wondering how they should proceed in the meantime. While the problem was remedied quickly, those two weeks of uncertainty caused a great deal of panic in the market, and had the potential to freeze the entire real estate market as consumers need flood insurance to close a mortgage. We strongly recommend that Congress change the reauthorization period to five years,” Stiglitz testified.

Stiglitz also told the Committee that IIABA strongly opposes a proposed FEMA regulation that would interfere in the private sector by mandating that Write Your Own insurance companies use brokers, not agents. Stiglitz said it “makes no sense for the federal government to dictate the type of delivery system an insurer should use, or the arrangement between an insurer and the agent/broker. The current delivery system is working very well, and we urge Congress to inform FEMA not to interfere in this private sector decision.”

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