Reinsurers Look To Bene;t From
Flood Bill’s Private-Market Focus
BY ARTHUR D. POSTAL
THE LEGISLATION reauthorizing the National Flood Insurance Program, passed by a House panel on April 6,
clearly opens the door for reinsurers to play
a strong role in the program.
He says the “NFIP is wise to explore that
option and relieve taxpayers of the crush-
ing financial burden of repaying debt.”
Besides giving FEMA the authority to
look into changing the basic concept of
While the bill contains several improve-
ments, it fails to deal completely with the
subsidy issue—especially the issue of the
$17.5 billion deficit the program is running.
Reinsurers are enthusiastic
about the legislation, which ex-
plicitly authorizes the Federal
Emergency Management Agen-
cy (FEMA) to “carry out initia-
tives to determine the capacity
of private insurers, reinsurers
and financial markets to assume
a portion of the flood-risk expo-
sure in the U.S.”
Ironically, while members of Congress
are ballyhooing the latest bud-
get deal, which cuts the current
budget by $38 billion, certain
provisions of the NFIP legisla-
tion postpone dealing with the
In this case, it kicks it down
the road for a minimum of the
five-year life of the proposed
legislation, until Sept. 30, 2016.
FEMA, an agency under the
Department of Homeland Security, administers the NFIP.
The bill is H.R. 1309, the Flood
It does so because raising
rates and introducing new areas
into the program has created
acute political difficulties for
some members of Congress.
Insurance Reform Act of 2011.
It was passed by voice vote
by the House Subcommittee on
� THE NFIP REAUTHORIZATION BILL would allow FEMA to assess the capacity of the private reinsurance market to assume a portion of the
Insurance, Housing and Community Opportunity. Industry
officials believe the full House Financial
program's risk, reducing the potential burden on taxpayers.
Services Committee is likely to take up the
bill in early May.
As stated in a document pro-
vided by congressional staff to
members of the subcommittee
that passed the bill, the “im-
mediate concerns of many local
communities and members of Congress are
the new flood-insurance rate maps and the
In a statement to NU, Frank Nutter,
president of the Reinsurance Association
of America (RAA), says his association “en-
thusiastically supports” language in the re-
cent House NFIP legislation that promotes
the utilization of reinsurance.
The language specifically allows FEMA
to utilize private-market reinsurance capacity to minimize the likelihood that the
program would need to borrow additional
funds from the Treasury.
The bill addresses these concerns by reestablishing an advisory council on mapping that existed for five years, from 1995
to 2000. These councils consist of FEMA
officials and private-sector experts. Under
the proposed legislation, FEMA would be
required to adjust new maps within six
months of being provided with the recommendations of these councils.
In addition, the bill allows FEMA to assess the capacity of the private reinsurance
market by seeking proposals to assume a
portion of the program’s risk, and it directs
FEMA to submit a report on such assessment
within six months of the bill’s enactment.
FEMA would also be given the power
under the bill to suspend mandatory-purchase requirements for up to three years for
communities that oppose being included
and meet certain criteria.
Nutter says the provision will allow the
NFIP to prepare for losses, unlike now, where
it operates on a pay-as-you-go system.
These provisions are certain to be criticized by the Government Accountability
Office, which several months ago cited the
NFIP as one of 30 “high-risk” programs,
i.e., programs costing the government unnecessary amounts of money. NU
Photo by iStockphoto
the program, the bill also gives FEMA new
powers and directives.
For example, it gives the agency the
authority to tear down and rebuild flood-
damaged properties. This authority should
be considered by FEMA “as an eligible
activity” for the purpose of mitigation as-
sistance, the bill says, with the caveat that
such action “must be cost effective.”
The bill also makes changes in the
premium structure for the flood insur-
First, it increases the annual cap on premium rates from 10 percent to 20 percent,
but phases in premiums for properties
newly mapped into the program.
It does so by setting a 50 percent discount from full-risk rates for newly mapped
properties, with annual rate increases thereafter limited by a 20 percent annual cap.
It also phases in full-risk rates for nonresidential properties, as well as second
homes and vacation homes.