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NARAB-II and NFIP -- Congress combines disparate insurance issues

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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. 

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.

Related story: Insurance regulation: A big ship now in motion

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.” 

But an industry lobbyist says, “There are so few details as to the practical implications of what [Congress is] trying to do. They haven’t worked out the details about the impact on Write-Your-Own companies of the legislation, which is distressing. It will be months before the complexities the legislation will create can be evaluated. There is confusion everywhere amongst agents and policyholders.”

In the House, opponents of the bill within the insurance industry are already erecting roadblocks. For example, – a coalition of environmental groups, taxpayer advocates, insurers, and housing and mitigation organizations say they have won the support of House Speaker John Boehner, R-Ohio in opposition to the bill.

However, the statement didn’t note that Boehner approved the provision dumped into the appropriations bill that delayed the rate hikes scheduled to go into effect later this year, the so-called Sec. 207 provisions.

“We applaud Speaker Boehner for rejecting proposals to further delay flood insurance reforms and hope that he will instead explore measured changes that will put a troubled program on a path to fiscal viability,” said in a statement.  

The statement cited the CBO projection of the cost of delay. “The Congress has just passed a one-year delay of some provisions in the omnibus bill. A four-year delay would make the situation even worse. Clearly the Speaker understands the gravity of this situation and we look forward to working with the House on targeted changes,” the statement said.

Also, on Monday, a federal district court judge in Gulfport, Miss. has scheduled a hearing on a lawsuit filed by states affected by the rate increases imposed by a 2012 law. The states want an injunction barring the rate hikes until the Federal Emergency Management Agency does a study evaluating whether they are affordable to NFIP customers. That is because in many cases the law mandates rate increases that are exponential for NFIP customers.


As for NARAB-II, the industry lobbyist said that “there is very little opposition to the NARAB provision.”

The Senate Banking Committee passed the version included in the flood bill in June, and the full House in October. It would establish a mechanism for establishing true nonresident licensing reciprocity for insurance agents. NARAB, as envisioned by the legislation would create a non-profit, independent board that would allow multistate licensing for insurance producers.

See also: NARAB II is needed

Under the bill, insurance agents will be able to apply for NARAB membership and become licensed to sell insurance in multiple states, but states will maintain their full authority in regulating the business of insurance.

States would retain their regulatory jurisdiction over consumer protection, market conduct and unfair trade practices, and would retain their rights over licensing, supervision, disciplining and the setting of licensing fees for insurance producers, according to Ken Crerar, president and CEO of the Council of Insurance Agents and Brokers in a statement issued when the bill was passed by the House.

A trade-group official explained that the legislation is modeled after the National Association of Securities Dealers (NASD) proposal and will be a completely voluntary, self-regulating organization.  “The big concession we’ve made is on governance –- that a majority of the governance has to come from state-insurance commissioners,” the lobbyist said.

The basic premise of the legislation is that, “If you want to keep getting nonresident licenses state-by-state, fine, you can keep doing that,” the lobbyist added. “If you’re only licensed in two or three jurisdictions, that’s probably the easiest thing to do.”

But agents would have the ability to submit themselves for membership in NARAB. “The governing body will set qualifications for membership,” and the qualifications have to be based on the “highest standards” that exist in any state law, which the lobbyist says really isn’t that high of a barrier. It will, though, mean continuing education, criminal background checks, fingerprinting, etc., he said.  

NARAB, for example, could decide that if you hold a CPCU designation, then you are automatically qualified for a P&C license.  It will be integrated with the National Insurance Producer Registry now run, sort of, by the NAIC. 

“You get your NARAB designation, and then you check off all the states where you want a nonresident license,” but you will have to be licensed first in your home jurisdiction,” the lobbyist said. 

Under the provision, NARAB will collect all of the state-licensing fees and remit them to the states. 

“States will have a short period of time to object to you being allowed to sell in their state, so they get an initial look/see, but that’s it,” he said. “They can’t discriminate against a NARAB member. Basically, it is ‘two-stop’ shopping,” he said. 

See also: NAIFA says prepare for legislative battles ahead


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