On May 18, the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on the reauthorization of the National Flood Insurance Program (NFIP). PIA submitted testimony in which we urged the Committee to pass a long-term reauthorization and highlighted several specific reforms we’re pursuing this year.
The NFIP’s most recent five-year reauthorization expired on September 30, 2017. Leading up to that deadline, the 115th Congress was unable to agree on reforms to the program. Since 2017, the NFIP has been subject to a total of 16 extensions of varying lengths, and some of the shortest extensions resulted in three brief NFIP lapses within a three-week period in early 2018. The NFIP has not been reauthorized for longer than its current one-year extension since its last five-year extension was passed in 2012. Its current authority will expire on September 30, 2021.
PIA supports the NFIP because it provides residential and commercial property owners with critical flood insurance coverage that the private market is presently unable to adequately supply.
This relatively early attention to the NFIP by the Senate Banking Committee is a positive sign that this Congress may try to pass a long-term reauthorization before the NFIP’s next expiration later this year.
Agents’ Commissions and the NFIP WYO Rate
The Write-Your-Own (WYO) reimbursement rate is the vehicle by which independent insurance agents are compensated for selling NFIP policies. Carriers earn a payment of 29.9 percent of premium from the NFIP, and carriers pay agent commissions out of those proceeds. Any cut to the WYO reimbursement rate would prompt carriers to pass their loss on to agents by reducing their commissions.
Unfortunately, during the hearing, the commission structure of independent NFIP agents was inaccurately characterized as 30 percent of the total premium paid. This misstatement was one of several, each of which served as a potent reminder of the NFIP’s steep learning curve and inherent complexity, to which the Senators and witnesses were not immune.
In prepared witness testimony and verbally during the hearing some witnesses and Senators expressed skepticism of the demands placed on NFIP agents and were dismissive of the value agents provide. These unfair depictions wrongly deny the expertise that agents provide to their customers and erase the extensive learning curve agents new to the NFIP must navigate to achieve that expertise.
PIA submitted supplemental testimony to challenge these claims.
For years, PIA has opposed any attempts to cut the WYO reimbursement rate because such a cut would unfairly reduce agents’ commissions for selling NFIP products. Independent agents often invest years of time and effort in the sale and maintenance of NFIP policies. They may not net any revenue at all until they have been servicing the policy for multiple years. Reducing the commissions to which NFIP agents are entitled would discourage them from remaining in the program and disincentivize new agents considering the expansion of their businesses to include flood products.
PIA strongly supported the 2019 House Financial Services Committee reauthorization bill that unanimously passed out of committee at that time. Notably, that package maintained the existing WYO reimbursement rate. PIA encourages this Congress to pass a bill like the 2019 House package, and we will oppose any bill considered by this Congress that would reduce the WYO reimbursement rate.