Last Thursday, the National Underwriter contained a story of the unusual coalition that had developed in opposition to HR 3121. Matt Brady reports:
In a case of politics making strange bedfellows, J. Robert Hunter of the Consumer Federation of America and the Reinsurance Association of America have joined to oppose legislation expanding the National Flood Insurance Program.
Those that closely follow insurance issues know Mr. Hunter runs insurance issues for the Consumer Federation of America a non profit group composed of other consumer oriented non profits that speak with a single voice on issues they deem important. In this case the debate on HR 3121 and the CFA’s opposition derives from the intersection of environmentalism and insurance theory.
The basis for his opposition to plans to expand the NFIP, Mr. Hunter said, is that while it may sound like something that could help consumers, he believed it would instead likely only aid developers looking to build along the coast.
“I don’t think it’s wise to subsidize” coverage in high risk areas,” he said, adding that proposals such as windstorm coverage expansion “encourages unwise construction” in high wind risk, high flood risk areas.
Mr. Hunter said he was not opposed to the idea of a flood insurance subsidy, but he said it should be something targeted to help consumers and be focused on scaling down the number of people living in flood-prone areas. Such a system, he said, could be based on the policyholder’s income, and should only be applied to existing structures.
Obviously Mr Hunter’s opposition was a blow to Representative Taylor’s bill. Normally he opposes the insurance industry in Congress in areas like providing a federal backstop for terrorism coverage as he did last year with no success. Insurers were no doubt delighted to have him come on board to front the opposition against the multi peril concept.
This is not the first time Rep Taylor’s bill has been declared dead, however. Before what became known as HR 3121 passed the House of Representatives, Sam Friedman declared the concept “Dead in the Water” in his his highly informative blog due to opposition from the White House. Ultimately President Bush’s announced opposition did not deter the House of Representatives from doing what they thought was right in passing HR 3121. Ironically, in his blog entry related to Thursday’s news story, Mr Friedman sounded a more cautious note on the political prospects of HR 3121.
The battle to keep wind out of NFIP won’t be easy. Powerhouse Sen. Hillary Clinton, the New Yorker looking to win the Democratic nomination for the White House, is solidly behind the bill–in fact, she introduced the Senate’s version of the legislation passed by the House, and is lobbying Sen. Chris Dodd, who chairs the Senate Banking Committee, to support addition of wind coverage.
That’s going to be an uphill battle, as Sen. Dodd–the Connecticut Democrat known for his support of the Hartford-based insurance community–has already sent different legislation to the floor that does not include coverage for wind risks……
Sen. Clinton has good reason to add wind coverage to the NFIP, given the increasingly hard time facing her constituents on Long Island when trying to get affordable homeowners coverage, with many private carriers pulling back and hiking rates in fear of a monster hurricane storming up the East Coast sooner rather than later. As a Brooklynite living a mile or so from the ocean, I can even sympathize.
Today, we wake to this Anita Lee story at the Sun Herald which I take as a tacit admission from Rep Taylor’s office of the political realities we face in the current Congress. With Mr. Hunter as the public face of the opposition, reinsurers are free and clear to make the argument that the NFIP is “more than an insurance issue.” However, the opposition also guarantees that problems with NFIP may very well not be fixed for another year. Indeed the exact type of development Mr Hunter decries in his opposition to HR 3121 is guaranteed to continue absent comprehensive solutions such as mandated building codes, actuarially sound premiums and increased federal oversight also die until next year. It may very well take another major metropolitan area being hit hard by a Hurricane before Congress sees the wisdom in allowing the resident’s of our coastlines to fully insure their disaster risks. Here is the Anita Lee story:
The Senate is unlikely to add wind insurance this year to a National Flood Insurance Program riddled with problems.
J. Robert Hunter, director of the Consumer Federation of America and an advocate of insurance reform, thinks a wind amendment to the National Flood Insurance Reauthorizaion Act will fail for two reasons: It’s an election year, and powerful senators have dug in their heels on both sides of the issue.
Supporters say the amendment is needed because private insurance companies are dropping Gulf and East Coast property insurance coverage for wind damage. Also, supporters say, one policy would end prolonged disputes over whether the cause of hurricane damage is wind or water.
Opponents have strong arguments against adding wind coverage to the NFIP, which has an $18 million deficit.
“It would add massive taxpayer exposure to an already debt-ridden and broken program,” said Jonathan Graffeo, spokesman for the Senate Banking Committee.
The amendment, which passed the House, wasn’t offered in the Senate Banking Committee because it faced death there. U.S. Rep. Gene Taylor, who sponsored the amendment in the House, hopes to meet with ranking committee Republican Sen. Richard Shelby of Alabama. Shelby opposes the bill, although his constituents on the waterfront are seeing their insurance options shrink and costs increase.
Taylor has argued the amendment would require actuarially sound wind-insurance rates, which means charges would be based on risk. The amendment also requires tougher building standards and raises coverage limits.
“You can’t trust the federal government,” Hunter said. “Just because the law says it’s going to be actuarially sound doesn’t mean it’s going to happen.”
Hunter, a former Texas insurance commissioner, worked for the National Flood Insurance Program from 1970 to 1980, serving as director for four of those years.
“I loved the program,” Hunter said. “I thought it was a tremendously good idea, but of course it hasn’t worked.”
Flood rates are heavily subsidized because rate maps are outdated and Congress has resisted increases.
After a hurricane, insurance companies adjust flood claims along with their own, creating what the government has determined to be an “inherent conflict.” (of interest). Also, FEMA paid operating costs to insurance companies of more than one-third to almost two-thirds of total NFIP premiums from 2004 to 2006, the government found.
Hunter asked, “You have a program that’s wasting money, that doesn’t work, that has subsidies from the taxpayers and you want to add more to it?”
Actually Mr Hunter we want to fix it rather than leave it broken. The politics at work will assure this issues remains with us into the next congress.