Congress Passes Bill Opening Flood Insurance to Private Firms

flood insurance policyGoing Private? New rules could allow private insurers to get in the flood protection business.

On its face, the latest bill looks like a win for consumers, but if it becomes law, the fine print will matter most.

The current Congress (and the Trump White House) have leaned heavily toward anti-regulatory policies. To date, they have had limited success pushing these agendas forward, failing multiple times, for example, to re-privatize health care. On flood insurance reform, however, their record is stronger. This legislation is one of several in play that re-shape how and where U.S. flood insurance works. If the bills live up to their stated purpose—and remain a bipartisan effort—they could bring much needed reform to FEMA’s deeply flawed system of “insure and rebuild” policies.

The U.S. House of Representatives voted 264-155 today to pass bipartisan legislation that encourages the sale of private flood insurance in place of policies from the federal government in high risk areas where flood insurance is required.The bill would give private insurers and state regulators more flexibility in what private policies satisfy the requirement that properties in flood zones have insurance.

The Flood Insurance Market Parity and Modernization Act (HR 1422), sponsored by Reps. Dennis Ross (R-Fla.) and Kathy Castor (D-Fla.), seeks to correct what its supporters contend is a problem in how homeowners are insured against flood damage. Currently, the vast majority of flood insurance policies are provided through the government’s National Flood Insurance Program (NFIP).

The bill allows that flood insurance provided by private sector insurance carriers shall be accepted and considered similar to those polices offered by the National Flood Insurance Program (NFIP), provided certain conditions are met.

It also clarifies that the Federal Emergency Management Agency shall consider any period during which a property was continuously covered by private flood insurance to be a period of continuous coverage.

The Flood Insurance Market Parity and Modernization Act passed the House last year by a vote of 419-0. The Financial Services Committee approved the bill this year by a vote of 58-0. The committee has also approved several other flood insurance bills that have not yet advanced. (As reported by The Insurance Journal)

What exactly does this suite of new flood insurance policies do? Advocates say they create a more competetive marketplace for insurance, but also reflect a more real-world perspective on risk. For example, rates can and will reflect more accurately how likely a specific building in a given location will suffer catastrophic loss. And the private firms, they say, will be more flexible in rewarding efforts at mitigation or risk reduction. They could also offer reduced rates for structures rebuild to higher standards. And structures that suffer repetetive losses will be priced accordingly. In other words, insurers will be able to offer both carrots and sticks. In the view of many, FEMA’s current approach offer a one-size-fits-all approach that doesn’t work and wastes millions of tax dollars.

We tend to agree. But the wording of the bills will have to be carefully crafted, so that homeowners don’t find themselves faced with a diminished FEMA and private insurance that has too many exceptions and caveats to provide real financial security in the event of the next storm.-Editor