PIA has navigated a rush of flood-related activity over the past several weeks. Please read on for some highlights of PIA’s recent work on flood insurance.
Proposed New NFIP Endorsements
Late last year, the Federal Emergency Management Agency (FEMA) proposed significant regulatory changes to the documents governing the Standard Flood Insurance Policy (SFIP) issued to policyholders whose properties are insured against the risk of flood through the National Flood Insurance Program (NFIP).
The NPRM contains significant proposed changes that would affect independent insurance agents who sell NFIP products. Specifically, the NPRM proposed five new endorsements, some of which would substantially change the NFIP with which flood agents are likely familiar. The NPRM would add a new Homeowner Flood Form and the following five new endorsements:
Increased cost of compliance (ICC) coverage. The NPRM would make it so that eligible properties would receive ICC coverage as a standalone mandatory endorsement. If finalized as drafted, this would not immediately affect ICC-eligible properties; FEMA anticipates this change will give it greater flexibility in implementing possible future changes to ICC coverage.
Basement coverage. The NPRM proposes an optional basement endorsement that seeks to reduce widespread confusion about whether the SFIP covers basements. The NPRM would define a “basement” as any area of a building whose floor is below ground level on all sides, regardless of its design or use.
Choice of actual cost value (ACV) or replacement cost value (RCV). The policyholder would choose their coverage at the point of purchase. Choosing ACV coverage would produce a lower premium than choosing RCV coverage. If buyers do not make a choice, their default coverage would be RCV. This change creates a new source of potential legal exposure for independent agents if a client, having chosen ACV coverage at the point of purchase, is dissatisfied with the outcome of a claim following a loss.
Optional temporary housing expense coverage. This endorsement would give policyholders the option of buying, for an additional premium, coverage that would compensate them for temporary housing expenses incurred if they are displaced from their insured property due to flood.
Optional builder’s risk coverage. This endorsement would allow a policyholder to name the builder as an additional insured and would address situations in which a policyholder in the process of constructing a building experiences a flood loss before that building meets the SFIP definition of “building.” In general, FEMA issues policies covering buildings under construction in the builder’s name. However, if a builder fails to assign a policy to a property owner before a loss, the policy could be unenforceable because neither the builder nor the property owner would have an insurable interest.
PIA submitted comments on behalf of our members; we also signed on to a joint coalition letter submitted by a variety of stakeholder entities.
National Flood Association Board of Directors Election
In 2022, PIA joined the National Flood Association (NFA), a nonprofit organization whose members represent all aspects of the flood industry, including, among others, insurance, mapping, and modeling. The NFA promotes sound public policymaking Shortly thereafter, PIA was invited to join its Board of Directors. Earlier this year, the NFA Board of Directors elected PIA’s representative to the NFA’s Executive Committee.
National Flood Conference
Finally, last month, PIA was represented by members and staff at the National Flood Conference and the Flood Insurance Producers’ National Committee meeting with FEMA, both in Washington, D.C. In both settings, FEMA’s planned rollout of its “Direct to Consumer” (D2C) platform was widely discussed.
PIA is continuing to push FEMA to ensure agents are adequately protected and included in its D2C plans as they are formalized and to urge Congress to pass a long-term reauthorization of the NFIP.