National Underwriter - April 18 2011

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
deficit issue.

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
mandatory-purchase requirement.”
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-
ance program.

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.