PIA Offers Ideas to Improve National Flood Insurance Program

October 19, 2005

The National Association of Professional Insurance Agents (PIA) filed comments this week with House and Senate committees holding hearings on the National Flood Insurance Program (NFIP), making a series of recommendations to improve it.

The recent twin natural catastrophes, Hurricanes Katrina and Rita, have prompted discussion of the best way to insure properties against damage from flooding. A hearing was held Oct. 18 by the Senate Committee on Banking, Housing, and Urban Affairs; a separate hearing is on tap before a subcommittee of the House Financial Services Committee on Oct. 20.

Among the five specific preliminary recommendations by PIA National: an increase in building property insurance limit maximums; a system of automatic coverage for contents in non-commercial properties; adding or coordinating flood coverage for commercial policies in the area of business interruption insurance; to separate insurance under NFIP from post-disaster government assistance; and continued multi-year authorization of the flood program by Congress for its various authorities.

In addition, while PIA strongly supports action by the federal government to help the victims of catastrophes rebuild their lives, and that needed disaster relief efforts address the need to stabilize the economies of the Gulf Coast states, an NFIP after-the-fact insurance buy-back offer from Congress, as has been recently proposed, is problematic.

Among PIA’s recommendations:

1. Increase NFIP building property insurance limits maximums for all classes of property able to be insured. Current limits are increasingly inadequate and with today’s values and adjusting for
inflation since 1968, provide less real dollar coverage.

2. For non-commercial properties, PIA National strongly suggests that NFIP consider including automatic coverage for contents per some percentage of the building amount insured for flood. Currently,
building/residence contents are not covered in an NFIP policy unless
the insured specifically decides to include that coverage and cost in
their NFIP policy. Most all in the NFIP program have building coverage, but fewer than should have contents coverage.

3. NFIP should consider adding or coordinating flood coverage for
commercial policies in the area of business interruption insurance. Business interruption coverage is now only available in the private sector property market on a covered peril basis. Flood is not a covered peril in the private sector and thus in Katrina and Rita, businesses — especially small-to-mid-size owners who purchased the coverage as a part of their Business Owner Policy in the private sector — were not able to have the coverage apply to their ongoing business cost needs in the flooding aftermath.

4. Separate Insurance from Government Assistance: PIA National never forgets that NFIP is a federal program, and as such may be subject to federal government assistance for specific limited areas with buildings and property owners that require NFIP coverage, but may have mitigation and/or true needs-affordability issues. Congress will, as always, decide who, what, where and when. However, when those are identified and Congress decides to make these rare accommodations that should be understood clearly as exceptions, this should not drive changes in the overall NFIP program.

5. Multi-year NFIP Authorization: A five-year authorization is attainable and desirable for the program’s sake and fully responsive to Congress’ evaluation obligations. Currently the NFIP is authorized until
Dec. 31 of 2008. PIA applauds this action taken by Congress and the
President in 2004.

PIA National believes that the NFIP is the appropriate structure for insuring flood losses. Going forward, Congress may consider a comprehensive, coordinated natural disaster catastrophe program. The widespread devastation caused by Hurricane Katrina serves as an awesome reminder that neither one state nor a regional grouping of states can fund or support a catastrophe reserve fund.

In September 2005 PIA National again outlined the elements of such a proposal and urged Congress to enact it. Such a catastrophe funding mechanism should neither encompass nor subsume the NFIP.

Additionally, PIA National is on record strongly supporting extension of the Terrorism Risk Insurance Act (TRIA). It believes TRIA must be extended, but that it must be treated as it is now — a specific, distinct program that cannot be paired with a natural disaster catastrophe program or the NFIP.

In the 1960’s, PIA led successful efforts to create a federal insurance program providing needed flood coverage for homes and businesses. Congress created the NFIP in 1968. PIA is also a founding member of the Flood Insurance Producers National Committee (FIPNC).

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