The House Financial Services Committee’s Subcommittee on Housing, Community Development and Insurance held a hearing earlier today entitled, “Reauthorization and Reform of the National Flood Insurance Program.” Testifying on behalf of PIA was Ariel Rivera, Secretary of PIA and founder and agency principal of Deer Insurance Agency in Florida.

PIA was the only agent group to testify at the hearing. The following witnesses also testified:

• Carolyn Kousky, Executive Director. Wharton Risk Center
• Karen McHugh, Missouri State National Flood Insurance Program Coordinator
• Roy Wright, President and CEO, Insurance Institute for Business and Home Safety
• Franklin Nutter, President, Reinsurance Association of America

Rivera focused his remarks on the important role of independent agents in selling and servicing NFIP policies, the effect of the Risk Rating (RR) 2.0 system, and the need for Congress to pass an NFIP reform bill that contains a long-term reauthorization. His full written testimony can be found here.

Below are some highlights from Rivera’s testimony today:

Role of the Agent

Independent agents are the face of the program; they are the “first responders” to both clients and carriers. To adequately serve their customers, they must remain up to date on ever-changing laws and regulations governing flood insurance requirements, and, historically, they have also had to keep pace with constant changes to the program involving maps, flood zones, and relevant community participation.

Agents explain this complicated program to consumers and interpret changes to the program as needed for their policyholders and prospects. They also assist with home closings and ensure, to the best of their ability, that policy renewals are completed on time. 

Agents stake their reputations on their customer service, and the NFIP has always been a challenging program. When consumers are confused about how the program works, they call their agents. When they become frustrated over a lapse or prospective lapse, they call their agents. When a policy or requirement changes, they call their agents. When mapping issues arise, they call their agents. Most importantly, when consumers face a loss, they call their agents. 

Risk Rating 2.0

Agents are also on the front lines of Risk Rating 2.0.PIA strongly supports RR 2.0because it will help the NFIP move toward solvency while also providing policyholders with more accurate information about their property’s flood risk. With better information, PIA hopes property owners will learn more about their risk of flood, engage in mitigation efforts where needed, and, ultimately, purchase and retain flood insurance that matches their risk.

As independent agents have gained experience with explaining RR 2.0 to policyholders, it’s become clear that they need more information about how the new rating factors combine to produce a RR 2.0 rate.

Risk Rating 2.0 is fully underway; every policy written and renewed from now on will be rated using it. What agents and policyholders need now is greater public understanding, which would be bolstered by increased transparency in the system. Greater transparency would also make it easier for agents to explain to their customers why their rates are changing. While FEMA continues to release helpful explanatory material, it remains difficult to explain some rate increases, even though it has been nearly 8 months since the new rating system began.

Long-Term Reauthorization and Reform

The NFIP has now been extended about 20 times since 2017 and will expire again on September 30, 2022. In the past 5 years, the program has been extended for weeks or even days at a time. The detrimental effect of short-term extensions on the program cannot be overstated; every short-term extension is another chance for a lapse.

The threat of a lapse leaves everyone involved in the program in a terrible position. Homebuyers and sellers look to their insurance agents and others involved in the transaction to solve a problem over which they have no control.

During a lapse, consumers are unable to renew existing policies or purchase new policies, and lapses may disrupt real estate transactions, especially if they involve properties in mandatory purchase areas. Prior lapses are estimated to have disrupted over 1,000 home sales per day, and the longer the lapse, the greater the impact. 

PIA strongly supported the House Financial Services Committee reauthorization bills that passed unanimously out of the committee in 2019, and we remain supportive of many provisions of the discussion drafts of legislation listed for today’s hearing. Additionally, needed updates to the program are long overdue. PIA supports updates including, but not limited to:

• the inclusion of a continuous coverage provision in any NFIP reauthorization, so that policyholders can move between the private market and the NFIP without penalty;
• the continuation of progress toward full-risk rates to keep the program solvent;
• the creation of an affordability framework to minimize potential attrition from the program;
• the creation of an agent-specific advisory council within FEMA so that agents have a voice during the regulatory process;
• investments in mapping and mitigation; and
• increased transparency for policyholders

PIA looks forward to continuing to work with FEMA and members of Congress to promote increased transparency around RR 2.0 rates and to have the NFIP updated and reauthorized in advance of its Sept. 30 expiration.