Sometimes the simplest ideas are among the best. That's the case with a recently introduced piece of legislation involving flood insurance.
The Flood Insurance Market Parity and Modernization Act of 2014 would clarify that private flood insurance, rather than only the policies issued by the National Flood Insurance Program, meets the mandatory purchase requirements of lenders.
Bill sponsors Sens. Jon Tester, D-Montana, and Dean Heller, R-Nevada, say that the drafters of the original National Flood Insurance Act of 1968 intended for private insurers to participate in the market.
“Unfortunately, due to a lack of clarity in existing law, lenders have not accepted private flood insurance as meeting mandatory purchase requirements,” according to a statement from Sen. Heller's office.
“This straightforward clarification to our nation's flood insurance market will encourage private-sector participation, increase competition and give consumers more options when shopping for policies,” Sen. Tester said in a separate statement.
The bill comes at a particularly opportune time. The National Flood Insurance Program is about $25 billion in the red. Earlier this year, Congress rolled back some of the provisions of a 2012 law that sought to return the program to some semblance of solvency, thereby making a bad situation even worse.
Encouraging private insurers to enter the flood insurance market is about the only way flood insurance will remain widely available. While commercial policyholders can buy cover from private underwriters, that option doesn't exist for the vast majority of residential property owners.
A potential private market exists. As Frank Nutter, president of the Reinsurance Association of America put it in a statement issued after the bill's introduction late last month, “reinsurers have an appetite to underwrite flood risk, and this legislation will facilitate the development of a private insurance market for flood risk.” He added that the bill will not only provide more options for buyers, but “importantly as well, reduce the federal government's role in providing flood insurance through the National Flood Insurance Program.”
Developing a private flood insurance market will be no easy task. It's hard to unwind what basically has been a government monopoly for nearly half a century. But the bill provides a straightforward way to begin reducing taxpayers' exposure to flood losses.
Other reforms will be necessary as well before private underwriters jump in — such as requiring actuarily sound rates for the coverage. That means higher premiums, and no sitting lawmaker wants to hear about those from his or her constituents.
The bill has been introduced so late in this Congress — and only months before elections, at that — that it stands little chance of moving this year. But if it can't get the consideration it merits this year, it's such a good idea it deserves action as early as possible in the next session of Congress.