Federal Flood Insurance Program Lapses
Despite the suspension of NFIP, flood policies remain in force and adjusters need to proceed with claims based on last year's FEMA guidance.
On Friday, March 26, the Senate left for a two week Easter recess without passing a jobs bill that includes extension of the National Flood Insurance Program (NFIP). The program lapsed at the end of the day on March 28, as scheduled. Reports state that Congress intends to retroactively fund the NFIP program once they reconvene on April 12.
This is the third time in recent months that the NFIP program has lapsed. The last lapse was March 1, when the Senate failed to vote on bills to extend the program. The Senate vote in March was stymied by demands from Sen. Jim Bunning, R-Ky., that the money to pay for the program be identified before the legislation moved forward.
On March 17, the House passed HR 4851, which contained a series of extensions, but the bill died in the Senate because of further Republican concerns over funding, again ending NFIP funding as of March 28.
National Association of Mutual Insurance Companies (NAMIC) spokesman Matt Brady has been quoted as saying that coverage will remain in place for those who have protection through the NFIP, but the impact is serious for those who are looking to close a home sale in flood-zoned areas. Brady told IFAwebnes.com, "This is now the third time in recent months that the National Flood Insurance Program has been allowed to lapse, and each time for reasons that have little or nothing to do with the program itself."
It has been reported that, when the Senate returns on April 12, they are likely to vote on the package. Sen. Majority Leader Harry Reid, D-Nev., issued a statement saying that if the Senate is unable to act on the bill before the NFIP expires, the program will ultimately be re-authorized retroactively to March 28, 2010.
During the lapse, how are insurers who are participating in the National Flood Insurance Program being affected? On February 27, the Federal Emergency Management Agency (FEMA) issued a bulletin with guidelines. The agency has stated that there are nearly 5.6 million policyholders nationwide and most should not be affected.
A FEMA bulletin that was issued in October 2009 gives guidelines for this scenario should it ever occur, or as it ironically was written in the bulletin, "in the unlikely event that a hiatus occurs…." The bulletin does explain that the program will "not be able to issue new policies, issue increased coverage on existing policies, or issue renewal policies" until Congress reauthorizes it.
Claims for policies already in force "before midnight on the last day of authorization will remain in force, and claims under those policies are to be processed and paid as usual"—even after the hiatus has begun, reads the October 2009 FEMA bulletin. Further, "Claims for covered losses occurring during a hiatus, on existing policies and on policies issued effective after the last day of effective authorization, are to be processed and paid as usual."
FEMA recommends holding in abeyance any new, renewal or endorsement premiums received on or after the first day of the hiatus. Claims on those policies and endorsements for losses suffered during a hiatus, however, cannot be made until Congress retroactively extends NFIP. There are exceptions that claims departments should look into, which are listed in the October FEMA bulletin. They have to do with non-renewal of policies for non-payment and other critical issues affecting coverage. Write Your Own (WYO) companies "may investigate claims under a reservation of rights letter or a non-waiver agreement, up to the point of payment," says FEMA. The right not to pay the claim if Congress doesn’t reauthorize NFIP would be reserved.
The American Insurance Association (AIA) is the leading property/casualty insurance trade organization representing approximately 300 insurers that write more than $117 billion in premiums each year. "[The suspension of NFIP] is especially unfortunate for those in need of acquiring flood insurance or renewing their policy because they will be unable to do so until the bill is passed and signed," said Blain Rethmeier, senior vice president of Public Affairs for AIA. "We can only hope that Mother Nature will be kind until then." He is hopeful and has been encouraged that Congress will issue another extension when they return.
The National Flood Insurance Program is a source of protection for millions of homeowners and businesses. There are 136,042 direct NFIP policies and 5,468,729 flood policies in the United States according to the latest statistics from the Insurance Information Institute (I.I.I.), with premiums of $3.1 billion.
Once Congress convenes on April 12, they will be looking to authorize money for the program. The House version of the bill will extend the program until April 30; under the Senate bill, NFIP wouldn’t have to be revisited until the end of the year. Once the temporary extension is granted, lawmakers need to take the time to ensure long-term program funding and authorization that will provide stability for policyholders and those seeking protection from flood. It is predicted by NOAA to be an above average flood season this year.
Mary Anne Medina is a Dallas, Texas-based freelance writer specializing in, but not limited to, insurance claims, claims management, expert services, claims education and training.