The Senate Banking Committee has been busy. In addition to working through a less-likely-to-be-vetoed TRIA reauthorization measure, they’ve put together a much saner-sounding NFIP reform bill. Insurance Journal has a summary of the differences between the House and Senate measures:
The Senate version also differs from the House bill in that it does not include optional federal wind coverage, something insurers have said would result in a dramatic expansion of the NFIP – with the potential for huge deficits – and a fundamental realignment of both the NFIP and the private wind insurance market.
The Senate bill won praise from insurers, while agents expressed disappointment that it lacks the increased limits and the business interruption and living expense upgrades.
Currently, the NFIP has an upper limit of coverage of $250,000 on the dwelling and $100,000 on contents on residential properties. The House proposed bumping those amounts up to $335,000 and $135,000.
I think that I would have to agree with the agents on this one. To the extent that the NFIP needs reform, I think some harmonization with the industry standard terms on homeowners insurance, including coverage limits reflecting recent developments in the real estate market, is in order.
What’s not clear to me at the moment is where things stand on the issue of “grandfathering”—the idea that if your property is insured through the NFIP, and the FEMA flood maps are subsequently redrawn to place you in a higher risk zone, you’re protected from the rate hike that would be expected to emerge as a result of the new risk profile.
Such a hike would be actuarially appropriate…but the NFIP has a social element to it too, including getting folks to participate in the risk, seek protection, and incentivize them to protect themselves from flood (as opposed to simply accepting government handouts to rebuild post flood).
If you’re going to shock a homeowners NFIP rates just because the government draws a new line on the map…well, that would seem to disincent folks from maintaining the behaviors that you’re trying to get them to adopt and maintain.