Recently, the procurement office of the Federal Emergency Management Agency (FEMA) quietly issued a request for information (RFI) regarding a proposal to offer consumers the option of purchasing a National Flood Insurance Program (NFIP) policy online. The RFI provides some background on the history of the NFIP and its recent implementation of its Risk Rating (RR) 2.0 methodology for all new and renewing policies. It describes the structure of the Write-Your-Own (WYO) program and the NFIP Direct and suggests the program could easily adapt to a format in which consumers use an online platform to purchase NFIP policies, potentially without the participation of either carriers or independent agents.
PIA agents have been concerned about the Direct to Consumer (D2C) initiative since David Maurstad, FEMA’s NFIP administrator, first mentioned it during his appearance at our May governance meetings. PIA’s members sell flood insurance through both the NFIP and the private market, and they were eager to alert FEMA to their worries in PIA’s response to the RFI.
PIA’s objections to the issuance of the RFI began with its dissemination. FEMA did not distribute it to any agent representatives; PIA obtained the RFI from industry partners. To the best of our knowledge, the RFI was not published in the Federal Register, nor was it posted publicly on regulations.gov, as most proposed rulemakings are, to encourage engagement with the public and ensure proposed rules reach the widest possible audience. As a result, predictably, members of the public were less likely to review and comment on it.
PIA members expressed an array of concerns regarding the proposal itself. First, a D2C process would likely convey far less information than an agent would and could prompt consumers to make choices that an independent agent would have discouraged. Second, the NFIP currently faces several pressing challenges, each of which could present obstacles that would prevent the successful implementation of digital services. Those challenges include but are not limited to the existing “digital divide,” an unprecedented economic atmosphere, and crushing Treasury debt.
Specifically, the NFIP already has an affordability problem; many property owners at risk of flood remain uninsured because they cannot afford flood insurance premiums. Those uninsured property owners may be those least able to pay for the broadband or smartphone that would give them access to a D2C system. Plus, implementing a D2C initiative would cost everyone involved in the program dearly. A project of this magnitude would be financially risky anytime, but, at present, the nation is lingering in a post-pandemic economic downturn, making the circumstances especially precarious. The post-pandemic economic turmoil has resulted in an environment in which even experts are loathe to predict America’s financial future.
Furthermore, over the past two years, industry stakeholders invested in burdensome modifications to their business practices to implement RR 2.0. Some independent insurance agencies struggled to integrate RR 2.0 into their businesses. Now, immediately on the heels of those expenditures, and despite the industry’s relatively nimble adaptation to RR 2.0’s rocky rollout, the D2C initiative would impose additional costs on, potentially, every sector of the economy that interacts with flood insurance. Now is not the time to burden FEMA’s NFIP partners with another expensive experiment.
Of course, the biggest risk to selling online is the chance that consumers will make unsuitable choices because they lack the knowledge to understand their risks and how best to protect themselves. Without the expert advice of independent agents, consumers are liable to misunderstand their level of risk and make uninformed decisions that leave their properties unprotected. The NFIP is complex; even before RR 2.0 was implemented, independent agent expertise was essential to consumer understanding. Now, the guidance of independent agents is indispensable.
The concept of risk is itself complicated, and agents often invest a lot of time in conversation with potential customers about their risk tolerance and then applying that newfound understanding to their flood insurance decision making. D2C will not be able to replicate that process. Today, potential NFIP policyholders with questions seek answers from independent agents. In a D2C world, a prospective customer may purchase a policy without understanding how much (or little) it covers, or, worse, abandon the buying process altogether because they find it too frustrating or hard to understand.
Moreover, the NFIP does not boast a vast universe of experts. Even now, without D2C, independent insurance agents with comprehensive NFIP expertise are rare and valuable, and their counsel is vital to consumers. The knowledge and expertise of independent agents cannot be supplanted or replaced by an online system. Indeed, the cost of reducing agents’ investment of time and expertise to a few clicks in a browser window could be catastrophic. Even the suggestion that any aspect of their work is replaceable with an automated system may discourage agents from remaining in the NFIP or expanding their businesses to include NFIP products at a time when FEMA should be encouraging more, not fewer, agents to become and remain sellers of flood insurance.
As you may know, PIA is one of the three independent agent trade associations whose member representatives comprise the Flood Insurance Producers National Committee (FIPNC), a group assembled in 1982 by the Federal Insurance Administrator to facilitate improved communications between independent agents and the NFIP. Representatives of FIPNC’s member associations meet with representatives of FEMA regularly several times each year. We take this duty very seriously and seek to represent the full spectrum of our flood agent members’ experiences in both our PIA and FIPNC interactions with FEMA.
FIPNC typically does not respond as a collective to NFIP policy proposals; in the case of this RFI, however, FIPNC took the unusual step of objecting with one voice to the way the D2C proposal was developed and disseminated. The FIPNC response can be found here.