While Congress continues to debate a 5-year reauthorization and reform legislation, the National Flood Insurance Program (NFIP) has implemented meaningful regulatory reforms that could improve the customer experience and encourage the development of a private market for flood insurance:
- NFIP Policy Refunds. Whereas the NFIP sets national average premium rates that overcharge some property owners while undercharging others, private insurance companies can offer better coverage at insurance rates closer to the property specific flood risk. However, the NFIP does not currently allow for cancellation of NFIP policies if policyholders switch to the private flood insurance market. This creates a disincentive because switching means carrying two duplicate flood insurance policies (one from NFIP and the other from the private market) until the NFIP policy expires. On March 27, 2018, the NFIP announced that policyholders will be able to cancel after October 1, later this year, and receive a pro-rata refund of their NFIP premium, upon providing documentation of private coverage and lender approval. Read NFIP's Bulletin.
- Non-Compete Clause. Currently, NFIP prohibits its insurance company contractors from selling competing private flood insurance policies. On March 16, the NFIP proposed to strike this clause from the contract. Read the NFIP Federal Register Notice.
- Global Reinsurance. Reinsurance allows NFIP to transfer some of the financial risk from U.S. taxpayers to international reinsurance companies. Last year, NFIP purchased $1 billion worth of coverage. As a result, NFIP was able to borrow $1 billion less from the US Treasury to pay claims for Hurricane Harvey. This year, the NFIP decided to re-up and expand its purchase ($1.5 billion to date) with additional placements expected later this year. Visit this page for recent news report.
- Letters of Map Amendment. NAR members are concerned that after paying mapping fees and taxes, each homeowner must spend $500-$2,000 on an elevation certificate to obtain a map amendment that removes their property. States like North Carolina and Minnesota already collect much of this elevation data using Light Detection & Ranging (LiDAR) but for whole neighborhoods at once, rather than surveying each individual property, one by one. The NFIP recently updated its Risk Map Technical Standards to allow property owners to submit LiDAR data in lieu of a $500-2,000 elevation certificate, which is an important change. Here are the Risk Map Standards; #627 provides for map amendments based on quality-level-3 LiDAR.
- Write-Your-Own Commissions. NFIP provides an expense allowance to insurance company contractors, which represents roughly 30 percent of the cost of an NFIP policy. NFIP recently proposed to trim this allowance and pass through the savings which could help with the affordability of flood insurance policies. Here is NFIP's notice.
These are modest but important NFIP changes. NAR will continue pushing for a broader set of reforms as part of the 5-year reauthorization legislation which has passed the House but awaits consideration by the Senate.