President to Ask for National Flood Insurance Program Borrowing Increase

Nov 16, 2012

The following article was published in Property Casualty360º on November 16, 2012:

President to ask for NFIP borrowing increase

By Arthur Postal

The Obama administration will ask Congress to raise the National Flood Insurance Program’s borrowing authority to $25 billion, according to sources.

The administration wants to move promptly on the issue to ensure no repeat of what happened in late 2005 in the aftermath of Hurricane Katrina, according to Don Griffin, vice president of personal lines at the Property and Casualty Insurers Association of America and head of the industry’s flood insurance coalition.

The NFIP’s current borrowing is $20.775 billion. The administration will seek to add an additional $4.025 billion. 

That was when the Federal Emergency Management Agency had to tell Write-Your-Own companies to stop writing checks to pay claims because the NFIP was out of money and borrowing authority, Griffin said.

At the same time, Michael Chaney, Mississippi insurance commissioner and head for the flood insurance working group of the National Association of Insurance Commissioners, says an informal survey of congressional delegations indicates concern in Congress about revisiting the program so soon after Congress just passed legislation in July extending the program until September 2017.

But Steve Harty, president and CEO of National Flood Services, Inc., (NFS) in Kalispell, Mont., which provides back office services to write-your-own companies, says Congress will have to act.

“This is not an entitlement program,” Harty says. “This is a contract with the American people.”

Harty says that, “Hurricane Sandy crashed unexpectedly into the lives of millions of homeowners, renters and businesses.  More than 100,000 of them will file a claim, quite a few for the total insured value of their now-destroyed homes.”

Harty says that while many more people should have bought flood insurance when they had the chance, the federal government has an ethical and legal obligation to pay in full the claims filed by people who have loyally paid their NFIP premiums year in and year out.

“Paying a claim is not an emergency handout – it’s fulfilling the government’s part in an insurance contract. It’s returning to policyholders the money they paid in over the years as premium.”

Harty says it is clear that losses from Sandy will exhaust available NFIP reserves, requiring the program to exercise its authorized borrowing authority. 

“But if the NFIP is going to stand up and deliver on those insurance contracts, it will need additional borrowing authority,” says Harty

He says that, “If Congress doesn’t increase that authority—and do it very soon—tens of thousands of families and businesses will be without the cash they need to restore their homes, their businesses and their lives.

“Now-homeless people in Staten Island and New Jersey and on the Long Island shoreline, living in shelters with their homes destroyed, can’t be made subject to the timetable of politics.  This authorization has to proceed on the timetable of both good business practices and human compassion,” he says.

Tony Bullock, lobbyist for the NFS in Washington, adds that it might be premature to project what the borrowing limit should be increased to because it is still too early to tell what flood insurance losses from Sandy might be. He says the current estimate is between $6 billion and $8 billion.

Bullock suggests that “an increase in NFIP borrowing authority will be tucked into must-do legislation before Congress leaves for the year.”

He adds, “Members of Congress won’t want to be responsible for default of this program.”

Edward L. Connor, deputy associate administration of the Federal Insurance and Mitigation Administration, a unit of the Department of Homeland Security, explained the issue to industry officials Wednesday at a meeting of the Federal Advisory Committee on Insurance convened by Michael McRaith, director of the Federal Insurance Office.

He says the “burn rate” at which the agency is going through money will require it to use up its $900 million in cash, and its remaining $2.9 million in borrowing authority by the end of the month in order to pay claims generated by Superstorm Sandy.

Cheney says the real concern is addressing this issue so soon after Congress voted to extend the NFIP program after five years of effort.

“There doesn’t appear to be support in some congressional delegations for an increase in borrowing authority because the program has just been reauthorized until Sept. 2017. Their concern is that they don’t want to revisit the issue this soon,” Cheney says.

At the same time, Cheney notes that a “compromise is likely to be struck by the Obama administration and Congress before the lame duck session ends.”

Cheney’s comments were made during the quarterly meeting of the National Council of Insurance Legislators, now being held in Mobile, Ala.

He says commissioners from Louisiana, Alabama, Texas and Massachusetts held a meeting about the issue in Mobile yesterday with industry and FEMA officials, and a panel discussion on the issue is being convened later today.

He says commissioners intend to meet with members of Congress while attending the quarterly meeting of the NAIC in National Harbor outside Washington, D.C. the week after Thanksgiving. He plans to hold a public hearing on the issue Dec. 2 during the NAIC’s there.

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