New NFIP Bill Poses Threat to Agent Commissions

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On July 18, Senators Bob Menendez (D-NJ) and Bill Cassidy (R-LA) introduced bipartisan legislation, the National Flood Insurance Program Reauthorization and Reform Act of 2019 (S. 2187), to reauthorize the NFIP for five years. The bill’s 10 cosponsors are from both chambers and both sides of the aisle. A House companion bill (H.R. 3872) was introduced by Rep. Frank Pallone (D-NJ) on July 22nd.

The bill contains many valuable provisions, like the creation of an Agent Advisory Council, an improved appeals process for consumers wishing to challenge claims and mapping decisions, and investments in improving mapping and mitigation.

However, the bill also includes a provision that PIA National views as unacceptable: a reduction in the Write-Your-Own (WYO) rate from 29.9 to 22.46 percent, a 25 percent cut from its current level. The WYO reimbursement rate is used by carriers to pay administrative expenses as well as agent commissions, among other costs. As a result, most, if not all, WYO insurance carriers could be pushed out of the program.

Most troubling for the program’s future is the likelihood that those WYOs that remain in the program will likely be forced to cut agent commissions to account for the reduction in the WYO rate. This will prompt agents to stop selling NFIP policies, because the reputational risk associated with doing so will no longer be sustainable, given the low commission rate. Consumers will be left without the expertise required to navigate this notoriously confusing program. Without an expert guiding consumers through the process, many consumers will follow the lead of their carriers and agents and opt out of the NFIP altogether. For a program that desperately needs a greater number of policies sold, it makes no sense to take this action, which will reduce the numbers of carriers, agents, and ultimately consumers involved in the program.

PIA National is advocating for Congress to follow the bipartisan path to NFIP reauthorization that already exists in the form of the House legislation that passed out of the Financial Services Committee unanimously last month. The House Financial Services package includes essential reforms to the program while leaving the WYO rate at its current level. PIA National fully supports that package as the vehicle for NFIP reauthorization and encourages passage by the full House and then the Senate.

PIA National will also continue to engage with the Senate to urge a reauthorization of the program that does not harm the ability of independent agents to deliver the NFIP to consumers.

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