Ser­vic­ing

But some GOP law­mak­ers ar­gue that help­ing pri­vate in­sur­ers bear more of the costs and risk of flood dam­age would be a sig­nif­i­cant im­prove­ment.

National Mortgage News - - Contents - By brian collins

Democrats wary of GOP flood in­sur­ance pro­pos­als

democrats are rais­ing con­cerns about a Repub­li­can push to trans­fer more of the risk of flood in­sur­ance to pri­vate in­sur­ers as Congress works to­ward reau­tho­riz­ing the fed­eral flood in­sur­ance pro­gram.

Dur­ing a re­cent House Fi­nan­cial Ser­vices Com­mit­tee hear­ing, Rep. Max­ine Wa­ters, D-Calif., said she fears pri­vate in­sur­ers will go af­ter the wealth­ier, low-risk home­own­ers and leave the Na­tional Flood In­sur­ance Pro­gram to cover the riskier, more flood-prone home­own­ers.

“I be­lieve that reau­tho­riza­tion can be bi­par­ti­san,” said Wa­ters, the top Demo­crat on the panel. “But I am con­cerned that if we do not work to­gether and heed my call, it will cause ir­repara­ble harm to the mil­lions of Amer­i­cans who rely on the NFIP to pro­tect their homes and busi­nesses.”

But Chair­man Jeb Hen­sar­ling, R-Texas, and other GOP law­mak­ers ar­gue that help­ing pri­vate in­sur­ers bear more of the costs and risk of flood dam­age would be a sig­nif­i­cant im­prove­ment.

R. J. Lehmann, a se­nior fel­low at the R Street In­sti­tute, tes­ti­fied that is es­sen­tial that “we be­gin the tran­si­tion to pri­vate, risk-based flood in­sur­ance mar­ket.”

He noted the NFIP al­ready serves a high-risk pool of home­own­ers. “Only a rel­a­tively small num­ber of home­own­ers buy flood in­sur­ance and vast ma­jor­ity of NFIP pol­icy hold­ers live in a 100-year flood plain,” Lehmann said. “That is a high-risk co­hort. There are no cher­ries to pick.”

Lehmann also said that the Fed­eral Emer­gency Man­age­ment Agency com­pleted a rein­sur­ance trans­ac­tion ear­lier this year, which al­lows the fed­eral agency to pass some of its flood risks on to in­vestors.

Steve El­lis, vice pres­i­dent of Tax­pay­ers for Com­mon Sense, said FEMA should em­ploy rein­sur­ance and other fi­nan­cial in­stru­ments to man­age risk.

“There have been enor­mous tech­no­log­i­cal in­no­va­tions that en­able in­sur­ers to ac­cu­rately price risk and pro­vide prod­ucts and cov­er­age unavail­able through NFIP,” El­lis said. “To­day the in­dus­try is clam­or­ing to write flood in­sur­ance and re­move some of the risks from tax­pay­ers like they do else­where in the world.”

But Caitlin Berni, vice pres­i­dent of pol­icy and com­mu­ni­ca­tion for Greater New Or­leans Inc., said there is “no sim­ple so­lu­tion to main­tain­ing the af­ford­abil­ity of NFIP pre­mi­ums and keep­ing the NFIP on sound fi­nan­cial foot­ing.”

Greater New Or­leans is a re­gional eco­nomic devel­op­ment al­liance serv­ing a 10-par­ish re­gion of south­east Louisiana. The al­liance is con­cerned the Repub­li­cans’ ap­proach might in­crease pre­mi­ums and re­duce af­ford­abil­ity.

“In­creas­ing the floor on pre­mium in­creases from 5% to 8% will have a detri­men­tal ef­fect on pre­mium af­ford­abil­ity,” Berni said. “In­creas­ing the floor will neg­a­tively im­pact many more pol­icy hold­ers. We urge Congress not to in­crease rates or sur­charges in this reau­tho­riza­tion bill.”

Congress is un­der the gun to pass a flood in­sur­ance bill by Oct. 1, when the pro­gram is due to ex­pire.

There are also con­cerns that House GOP lead­ers want to stop grand­fa­ther­ing flood in­sur­ance pre­mium rates by 2021.

“The grand­fa­ther­ing of prop­er­ties is one of the most ef­fec­tive af­ford­abil­ity tools avail­able,” said Re­becca Stern­hell, deputy direc­tor of the New York City fed­eral af­fairs of­fice.

“In­creas­ing the floor on pre­mium in­creases from 5% to 8% will have a detri­men­tal ef­fect on pre­mium af­ford­abil­ity,” she said.

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