H OUSING N EWS R EPORT
May 2016
flood insurance policies.policies.
properties in a flood zone.
Franklin W. Nutter, president of the Reinsurance Association of America, a Washington, D.C.-based trade group, said severe weather damage can be a blow to insurance companies, but reinsurance companies — which insure insurers — can mitigate losses. “Usually, 50 to 60 percent of the insurance losses get passed on to reinsurers,” said Nutter. “We’re the safety net of the insurance industry. The industry has played a big role in Sandy, Rita and other natural disasters.” Many insurers that sell coverage for homes and businesses seek to spread the cost of potential claims by buying “reinsurance” from other companies. Reinsurers don’t deal with consumers, but are part of the capital financing mechanism for a national trade association representing U.S. reinsurance companies. Property owners seeking that kind of protection need to buy a separate flood policy, usually through the National Flood Insurance Program, administered by FEMA, or through private insurance companies. As administrator of the flood program, FEMA promulgated the Standard Flood Insurance Policy (SFIP), which sets the terms of the SFIP, its rate structure and premium costs. Policies can be obtained in two ways under NFIP. Either directly from FEMA or from FEMA authorized private insurers, known as “Write Your Own” (WYO) companies, according to Griffin, the insurance trade group executive. The WYO companies serve as intermediaries in providing flood insurance. “There are over 5 million policy holders in the NFIP,” said Griffin. “Florida has 36 percent of all flood policies. The next two biggest states are Louisiana and Texas.” To plug the hole in the NFIP’s balance sheet, new higher rates were implemented in 2015 to put the flood insurance program on sounder financial footing. The government is slowly phasing out subsidized flood insurance for more than 1 million Americans with houses in flood zones, who sometimes pay half the true commercial rate. Rates will increase by as much as 25 percent each year until premiums equal the full risk of Reinsurance
The cost of bailing out flood victims of Katrina and Sandy was so overwhelming that Congress passed the Biggert-Waters Flood Insurance Reform Act in 2012. Biggert-Waters, which was sponsored by Representative Judy Biggert, an Illinois Republican, and Representative Maxine Waters, a California Democrat, sought to reform the nation’s nearly bankrupt flood insurance program, ending federal subsidies for insuring buildings in flood-prone coastal areas. But a year after the law passed, coastal homeowners received new flood insurance bills that were two, three, even 10 times higher than before. The insurance rate increases hit many of the 5.5 million coastal home and business owners covered under the National Flood Insurance Program . “Passing Biggert-Waters was the right thing to do,” said Nutter. “From our perspective, the 2012 provision was the right thing to do.” But homeowners didn’t believe that. The homeowners’ frustration erupted into a grassroots lobbying campaign to roll back Biggert-Waters, and lawmakers in Washington quickly got the message. A follow up bill in 2014 — dubbed the Homeowner Flood Insurance Affordability Act — capped the increase, slowing the impact of rate increases for many policy holders. Jim Whittle, assistant general counsel with the American Insurance Association (AIA), said there is interest in the marketplace to support private insurers supplementing the National Flood Insurance Program. AIA is supporting (H.R.2901), the Flood Insurance Market Parity and Modernization Act of 2015, which is sponsored by Dennis A. Ross, a Florida Republican and Patrick Murphy, a Florida Democrat, which opens up the flood insurance market tomore private insurers. The new lawwould clarify a provision in Biggert-Waters, making private flood insurance to be treated the same as federal flood insurance for homeowners with federally backed mortgages who are required to buy coverage. “There’s interest in the market place for private insurers to provide flood insurance,” said Whittle, noting that the NFIP expires in 2017. “We’re trying to encourage people to pay for Continued Next Page
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