Editor’s note: Arthur D. Postal writes a weekly column for PC360 on insurance-related developments in Washington. Prevoiusly, he was National Underwriter’s Washington Bureau chief. Opinions expressed are the author’s own.
Two long-simmering insurance-industry pocketbook issues will be in the spotlight when the Senate returns to work next Monday.
Legislation, S. 1846, reopens the battle that has been underway since 2007 over the solvency-vs.-affordability issue involving the National Flood Insurance Program (NFIP). There is a backup bill, S. 1926, that could also be used as a vehicle.
Added to the legislation last Tuesday by supporters of rolling back rate increases imposed by the 2012 bill reauthorizing the NFIP was a provision sought by industry that would revive the National Association of Registered Agents and Brokers. Agents and brokers want the so-called “NARAB-II” because they believe it will allow them to compete more efficiently for customers across state lines.
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The combined bill was cleared for floor action late Thursday by the Senate leadership after agreement was reached on what amendments will be allowed to be debated on the floor.
How did such disparate issues get co-mingled? Because that’s how Congress works. Members of Congress from Hawaii to Vermont are under tremendous pressure to roll back actuarial rate increases imposed by the 2012 law that provided long-term reauthorization of the NFIP.
In order to deal with the Senate’s arcane rules, which allows each member to effectively have veto power over allowing legislation — supporters of the legislation delaying the rate hikes for up to four years have added NARAB-II as a sweetener, in other words to win industry support.
Industry opposition to delaying the NFIP rate hikes stems from a host of factors:
First, a delay involves changing software programs that are spitting out the bills implementing the rate increases. That creates both uncertainty, and, based on comments through letters to members of Congress by Write-Your-Own companies and the IT company that writes the software for many of them, potentially millions of dollars in costs for rewriting software and resending bills. And, they argue that it could take up to all of 2014 to right the accounting ship.
Second, there are high and rising deficits in the NFIP — deficits everyone realizes the program will never be able to pay off, and that hurts the industry’s credibility with fiscal hawks in Congress who are demanding lesser government, not more. For example, the Congressional Budget Office said in a recent projection of the cost of the Senate bill that the rate delays would exacerbate the program’s finances by adding an extra $2.1 billion to its already alarming $24 billion debt load.
To deal with the issue, the insurance industry is “lobbying up,” i.e., providing campaign contributions and retaining outside firms, in order to ensure each member of Congress understands the viewpoint of a particular trade group, agency or insurer. That’s another added cost.
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To add to the mess, the industry wanted the focus in 2014 to be on reauthorization of the Terrorism Risk Insurance Program, the top industry priority before it began to dawn on everyone that the actuarial rates imposed by the 2012 bill reauthorizing the NFIP exposed political deals ensuing rate subsidies that date back to 1972.
There is great danger, industry officials acknowledge, that the debate starting Monday could color industry relations with Congress and spill over to the TRIA-reauthorization issue for the rest of the year.
For example, a Louisiana House member persuaded the House Republican leadership to include in the appropriations bill, just recently passed, a provision he championed in June that would delay certain rate hikes imposed by the 2012 NFIP reauthorization law.
However, that provision impacts rate hikes not scheduled to go into effect until October at the earliest. And, in doing so, he and his allies in the House Republican leadership angered fellow Republicans who lead the House Financial Services Committee, the committee that has oversight over flood issues. That could impact how the House acts on S. 1926 when and if it is passed by the Senate.
Indeed, the politics and practical implications of what will start to unfold next Monday are bewildering.
Supporters of the delay legislation in the Senate now have 30 cosponsors of their legislation. They have even enlisted the Independent Agents and Brokers of America (IIABA) on their behalf, and also have strong support from the real-estate industry, homebuilders, banks and other mortgage servicers.
“Every day, our coalition to fix the Biggert-Waters flood reform bill grows stronger and deeper,” Sen. Mary Landrieu, D-La., the most outspoken and effective advocate of the delay legislation, said last week. “Today’s support from the IIABA sends a clear message from insurance agents and brokers that we must act quickly to achieve our shared goal of making flood insurance self-sustainable and affordable for middle class, hardworking homeowners who have played by rules. They cannot wait any longer.”
She added, “I will continue my efforts to pass these fair reforms that provide basic consumer protections so people can continue to live where they work to produce energy and manufacture the goods and services necessary for continued economic growth.”