Once again the politicians in Washington are oblivious to the needs of the citizens they are supposed to be representing. We hear about bipartisanship and this is a situation that is truly bipartisan. Both parties are playing pure politics with the failure to extend the NFIP. This may not seem like a big deal to many folks, but by not having access to Flood Insurance the impact is rippling throughout our economy. Lenders will not close on loans without Flood Insurance in flood prone areas, which means every coastal community.
Are there some legitimate arguments against the NFIP as it is currently structured? Absolutely, it is $19 billion in debt. This is due to the fact it is like most insurance pools and funds regulated by a governmental agency, federal or state. The rates have not been adequate as it is a “take all comers’ program. This should not be a surprise as it is a government program with all the built in deficiencies that come with that structure. In the scheme of things in Washington when does $19 billion matter to a politician inside the “Beltway”. That is not the reason. The reason is everyone wants to pass the extension of the NFIP and it is a good “hostage” to hold to try and garner votes for other issues. This is why the politicians won’t do what is right and just pass some stand alone legislation.
Some legislators will try to use the argument it is an inefficient program and needs reforms. No argument here, but first things first. Our economy is in bad shape and historically in order for the economy to improve the housing sector must improve. As long as the NFIP is not extended the housing market cannot recover. This is proof positive our representatives in Washington do not care about the citizens, but only about their power. I believe the NFIP will be extended in the near future. I would hope they would extend it for at least five years so we can have continuity of the program.
Once it is extended the service from the NFIP will probably deteriorate. This is due to the fact that when State Farm closes down their WYO program the NFIP will be overwhelmed by the direct increase in business for State farm agents. Before the WYO program was initiated in the early 1990’s the NFIP could not efficiently handle the day to day operations. That is why they let other parties administer the program. State Farm agents are the largest single group of agents that write Flood Insurance. I remember those days before WYO. It was an absolute nightmare to write and service Flood Insurance. I can see the same scenario unfolding with the State Farm decision.
I will not even go into the reasons why State Farm is closing down its WYO program. There is no logical reason from a business standpoint as the way the WYO program is administered it is guaranteed profit for a carrier. While State Farm is a mutual company let me assure everyone it is a “for profit” organization. Eventually the real reasons will be disclosed. I would venture to say their handling of Katrina claims is part of this decision.
Long time Slabbed commenter Supsalesmgr (Sup) is a regional sales manager for a Global Fortune 500 insurer.
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2 thoughts on “Slabbed takes a look at the current impasse in the NFIP: A Guest post by Supsalemgr”
Very good post. However, I felt like I was watching a TV show where they left the best part hanging. IE State Farm and their exit from NFIP. I look forward to the next post.
Steve, there is much speculation “on the street”. Since it is only speculation I do not feel it appropriate to post that information. This is one one of those situations where patience is necessary. I just can’t see how something this big in the insurance industry will just go away. That being said, State Farm has always been very effective in keeping things close to the vest. Not being a publicly traded company allows them much more flexibility in what information about the company is released.
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