Introduction of Bipartisan NFIP Reauthorization Bill Renews Threat to Agent Commissions

On By Lauren Pachman, Counsel & Director of Regulatory Affairs

This week, Sens. Bob Menendez (D-NJ) and Bill Cassidy (R-LA) introduced bipartisan legislation that would reauthorize the National Flood Insurance Program (NFIP) for five years and make several changes to the program. The National Flood Insurance Program Reauthorization and Reform Act of 2023 has a House companion bill, which is sponsored by Reps. Frank Pallone (D-NJ) and Clay Higgins (R-LA).

The bill’s Senate supporters include Sens. Cory Booker (D-NJ), Kirsten Gillibrand (D-NY), Cindy Hyde-Smith (R-MS), John Kennedy (R-LA), Chris Van Hollen (D-MD), Marco Rubio (R-FL), and Roger Wicker (R-MS). The Senate Banking Committee has jurisdiction over the NFIP, and its leaders, Chairman Sherrod Brown (D-OH) and Ranking Member Tim Scott (R-SC), have both expressed interest in reforming and reauthorizing the program during this Congress.

Over the past several years, the New Jersey and Gulf Coast Congressional delegations have been vocally critical of the NFIP’s Risk Rating 2.0 (RR 2.0) methodology, a recently implemented revision to the way the NFIP calculates premiums. RR 2.0 is now in use nationwide and is aimed at producing rates that more accurately reflect individual properties’ risk of flood.

In general, existing NFIP policyholders’ rates are increasing gradually over several years until they reach an actuarially based rate. Ultimately, most NFIP policyholders will pay rates that are intended to reflect each individual property’s level of flood risk. In recognition of the challenge associated with imposing full-risk rates on some policyholders, the bill would lower the annual maximum for residential policy premium increases from 18 percent to 9 percent.

The bill includes several provisions that could improve the program, including the creation of an agent advisory council with a designated seat for a PIA representative, increased funding for mitigation, the development of an affordability framework, and improvements to the claims process.

However, the bill also includes a provision that PIA has long viewed as unacceptable: a reduction in the Write-Your-Own (WYO) reimbursement rate from 29.9 to 22.46 percent. Carriers that participate in the NFIP use the WYO reimbursement rate to pay administrative expenses and agent commissions, among other costs. This substantial cut could drive WYO carriers out of the program entirely, further tightening carrier markets in flood-prone areas—many of which are already facing crises of affordability or availability, or both.

A cut to 22.46 percent could force the WYOs who remain in the program to drastically cut agent commissions to account for the lower reimbursement rate. Subjecting NFIP flood agents to drastic compensation cuts could prompt them to leave the NFIP, and that could deprive consumers of the expertise they need to navigate this notoriously confusing and increasingly complex program.

The NFIP is currently set to expire on Sept. 30, 2023, unless Congress acts to reauthorize it. Since its last five-year reauthorization expired in 2017, the program has been subjected to 25 short-term reauthorizations and a handful of lapses.

PIA will continue to urge Congress to pass a long-term NFIP reauthorization bill that includes essential reforms and does not devalue the irreplaceable expertise of independent agents.