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Senate introduces flood insurance reform proposal

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A U.S. Senate proposal released on Monday aims to reform the “much-maligned” National Flood Insurance Program. 

Senator Bob Menendez, D-N.J., a member of the Senate Committee on Banking, Housing and Urban Affairs, said his proposal aims to make the program simple, affordable, fair, efficient and accountable to consumers and taxpayers, according to a statement issued by the senator’s office on Monday. 

The proposal includes provisions to make rates more affordable for low- and middle-income families and would repeal “arbitrary” surcharges on homeowners and businesses. It would extend the 60-day deadline to appeal a claim to the Federal Emergency Management Agency; enforce the 90-day deadline for FEMA to adjudicate an appeal and award the full amount if FEMA fails to comply with the deadline; and require all appeals to be heard by an outside arbitrator.

The proposal would also return the program, which has a deficit of $24.6 billion, to solvency by eliminating or transferring its debt to the general fund and halting the nearly $400 million in annual interest payments it must make to the Treasury Department.

The proposal would also require Write Your Own insurers — property/casualty insurers writing and servicing the standard flood insurance policy in their own names — to pay attorney fees and other penalties to the policyholder when it is determined they engaged in bad faith in underpaying claims. It would limit profits for these insurers, and align their compensation more with performance and eliminate incentives to lowball claims by imposing penalties for both under- and overpayment. 

Reauthorizing and reforming the NFIP is a priority for the American Insurance Association, Tom Santos, the group’s Washington-based vice president for federal affairs, said in a statement. 

“We have repeatedly called for improvements to the NFIP that achieve transparency, certainty and simplicity that will allow insurers and property owners to make better choices regarding the risk they face,” he said. “After large catastrophic events, policyholders, communities and insurance companies are often frustrated by a complex and opaque system that, for some, can hinder post event recovery.”