NEW ORLEANS -- An aggressive, pro-consumer flood insurance reform bill is winning sponsors from coastal state senators spanning the full political spectrum, but Louisiana’s John Kennedy is bracing for major pushback from the insurance industry and lawmakers from states that rarely see flooding.
“There are some people in Congress who think, ‘Look, everyone in Louisiana lives on the water; move!’ said Kennedy, a Republican who worked with New Jersey Democrat Robert Menendez to craft a bill that would reauthorize the National Flood Insurance Program for the next six years while trying to address systemic problems that left the NFIP at least $25 billion in debt.
The bill sponsors are calling it the Sustainable, Affordable, Fair and Efficient (SAFE) NFIP Act of 2017, and policyholder advocacy groups played a major role in putting it together. George Kasimos, a victim of Hurricane Sandy flooding in New Jersey who spent four years fighting for his insurance proceeds and started the advocacy group Stop FEMA Now, says the bill is a beacon of bipartisanship.
“You’re talking about somebody from Senator (Marco) Rubio from Florida, who’s a conservative Republican, to Elizabeth Warren (of Massachusetts), the most liberal Democrat; they’re in this. When was the last time those two voted on the same bill?” Kasimos said.
Kennedy and Menendez are on the controlling committee, the Senate Banking Committee, and hope their bill will emerge from a handful of flood-insurance reauthorization proposals. Banking Chairman Mike Crapo, R-Idaho, and ranking member Sherrod Brown, D-Ohio, have shown interest in adopting much of the Menendez-Kennedy bill’s provisions, Kennedy said.
But Kennedy also expects to face tough negotiations on the final language of the legislation as the insurance industry, state insurance commissioners and fiscal hawks pick it apart.
Those groups are likely to take issue with the bill’s proposed new policyholder protections and benefits, such as a 10-percent cap on annual premium hikes, which would replace a 25-percent limit put in place in 2012 and the current 18-percent cap on primary insurance rates for residential properties.
Other homeowner-friendly provisions include one forcing insurance companies to pay legal costs for policyholders who appeal their claims determinations and win in court; and another that would end the “earth movement” exception in standard flood insurance policies, which allowed insurance companies to deny claims by attributing damage to sinking or shifting in the ground underneath a flooded house.
And the bill proposes two new ways homeowners can collect more money from the NFIP: bumping up the Increased Cost of Compliance, or ICC, funding that policyholders can collect to help elevate their homes, from $30,000 to $100,000; and raising the standard residential policy coverage limits from $250,000 to $500,000.
And then there are provisions that take direct aim at the bottom line of insurance companies, which administer the program on FEMA’s behalf and get reimbursed for their costs from the NFIP.
The bill proposes to limit the insurance companies’ profit and overhead fees to 22 percent of the flood insurance payout on each claim, down from 31 percent now. Kennedy estimates that would reduce NFIP’s payouts by about $350 million per year, money the program can use to improve its risk maps and expand mitigation against future flood damage.
In addition, the bill would freeze interest payments for six years that the NFIP has been making to the federal treasury to pay off the program’s huge debt, which was estimated at $25 billion, may be as high as $29 billion now and was mostly racked up in paying claims from Hurricanes Katrina and Sandy.
Conceivably, the debt-payment freeze would save the program $400 million each year and make it more sustainable, but Louisiana Insurance Commissioner Jim Donelon is skeptical. He blamed Congress for creating the mess in NFIP and wondered if the Menendez-Kennedy plan is more pie-in-the-sky.
“If he can bring home all those goodies, so be it,” Donelon said. “It will benefit our state by making flood insurance more affordable. But, frankly, I think this is more of a promotional, media tour.”
But Kennedy was unapologetic about promoting a heavy spending bill, even though he claims to be “as cheap as they get.”
“This bill costs money, there’s no question about it,” Kennedy said. “There’s no way to fix this problem without spending money. But I think it’s money well spent.”