After witnessing the devastation caused by earthquake, tsunami and tornadoes, we now watch the rising flood waters in the Midwest. As a recent Missouri Department of Insurance news release warned in advance, flooding is an especially big concern this spring, and the Mississippi is cresting at record levels. Despite advisories such as the NAIC’s March Consumer Alert , many consumers don’t realize that standard homeowners and commercial property policies don’t cover flood damage to property and possessions despite required flood warning disclosures required at policy inception and/or renewal in many states. Flood insurance must be purchased through the National Flood Insurance Program (NFIP), a financially troubled program administered by the Federal Environmental Management Agency (FEMA) that is currently almost $18 billion in debt.
The proposed “Flood Insurance Reform Act of 2011 ,” H.R. 1309, appears to have general support of the insurance industry. On April 7, a panel of the House Financial Services Committee passed legislation that would keep the NFIP in operation until Sept. 2016. Industry trade groups have voiced support for the stabilizing effect of the extension as the NFIP has been temporarily reauthorized eight times since 2008, causing considerable disruption to personal and commercial property policyholders and the real estate market. Draft legislative provisions of H.R. 1309 include a move toward eliminating rate subsidies, indexing the maximum limits, providing for additional-living-expense and business-interruption coverages, and a method of addressing flood mapping issues. Among the industry groups that have testified, the Reinsurance Association of America (RAA), urges that strong consideration be given to adding a private component to the NFIP through reinsurance as a way of shifting some risk to the private sector.
This draft legislation may fare better than the “Multi Peril Insurance Act of 2009,” which was not widely supported by industry and never enacted into law. Introduced by U.S Rep. Gene Taylor of MS, a Hurricane Katrina flood victim, H.B. 1264 proposed adding wind exposure coverage to the NFIP in an attempt to close the coverage gap when wind and water damage are covered under separate policies (and remove the “anti-current causation clause” found in most policies). Although opinions on how to get there differ, legislators and industry representatives appear united on the need to overhaul NFIP financing and ensure greater certainty in the program.
Although consumers must live in a community that participates in the NFIP to qualify for national flood Insurance, FEMA reminds us that “we all live in a flood zone.”
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Actually, FEMA is the Federal Emergency Management Agency.