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The Federal Emergency Management Agency’s decision to limit the National Flood Insurance Program in response to the federal government shutdown was condemned by insurance trade groups.
President Trump signed legislation reauthorizing the NFIP until May 31, but due to the lapse in annual appropriations for the Department of Homeland Security, the annual appropriation for the NFIP also lapsed, FEMA said in a statement.
“The NFIP is continuing to pay flood insurance claims,” the agency said in a statement on Thursday. “However, FEMA advised Write Your Own companies that the sale of new insurance policies and renewal of lapsing policies may be affected because of the lapse in appropriation. This is because the WYO (insurers) are entitled to a fee from the sale or renewal of flood insurance policies and such a fee may be considered an impermissible funding obligation during a lapse of annual appropriations.”
While claims processes will function normally, the NFIP will not issue new policies, change existing policies or issue policy renewals, according to a statement by the Risk & Insurance Management Society Inc. on Thursday. In addition, NFIP insurers are not permitted to collect premiums for the issuance, renewal or monetary endorsements of NFIP policies because such actions would violate the Anti-Deficiencies Act, according to the statement. The statute prevents the federal government from incurring obligations or making expenditures in excess of appropriations or funding.
“Limitations on the NFIP can have serious repercussions, but it is RIMS’ hopes that the government shutdown concludes quickly and that FEMA remedies this situation as soon as it is able,” RIMS CEO Mary Roth said in the statement.
But the American Insurance Association, the Council of Insurance Agents & Brokers, the Independent Insurance Agents & Brokers of America, the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America criticized FEMA and urged the agency to rethink its decision in a joint statement on Thursday.
“The decision to stop issuing and renewing NFIP polices for the time being is a rebuke of the clear intent of Congress and President,” the groups said. “The inability of FEMA to act as directed by our elected officials is disappointing.”
Congress issued a “clear directive” to FEMA when it worked on a bipartisan basis to extend the NFIP last week because of its “critical importance to communities and families,” Rep. Maxine Waters, D-CA, and incoming chair of the House Financial Services Committee, said in a statement on Thursday.
“I urge FEMA to immediately reconsider this harmful and incorrect interpretation of its authority and resume its important work of providing flood insurance to families across the country,” she said.
“FEMA is aware of the concerns regarding this situation – especially given that Congress reauthorized the NFIP last week – and is actively working with external stakeholders to assess the impact and determine what options exist to enable the NFIP to allow the sale and renewal of flood insurance policies to continue,” the agency said in its statement.
All policies in effect on or before Dec. 21 will remain in force and NFIP insurers will continue to pay claims under those policies during a lapse, according to FEMA. In addition, while an expiring flood insurance policy may not be renewed during the lapse, there is a 30-day grace period beginning at the end of the specific policy’s term during which the policy is still in effect, the agency noted.
The U.S. House of Representatives voted to extend the National Flood Insurance Program in its current form until Nov. 30, but the head of the House Financial Services Committee took the Senate to task for failing to act on the House’s proposed overhaul of the program.