The U.S. House of Representatives have passed reform legislation for the National Flood Insurance Program (NFIP) despite distractions from numerous insurers. State Farm Insurance Company dropped out of the government program last year, leaving over 800,000 policies in the government’s hands.
The government’s NFIP covers more than 5.6 million property owners from common natural disasters as well as flooding. State Farm leaving the program marks the largest withdrawal from the program since it began in 1969. FEMA (Federal Emergency Management Agency) runs the government program.
The policies are marketed, sold and written by 85 private insurance companies on behalf of FEMA. The insurance companies charge a fee for doing this service for FEMA. When policy holders pay their premiums, the money goes to FEMA, who then places it in an emergency fund to pay claims out of, as needed.
Several insurance firms have been lobbying the Congressional lawmakers for control of the 800,000 policies left behind by State Farm. The Lawmakers have been trying to focus on reforms for the troubled flood insurance program and battle with insurers that are lobbying for the abandoned policies.
Several insurers want to see the National Flood Insurance Program reverted back to its initial purpose; to handle complex risk properties and repetitive losses. Some of the companies fighting to get control of the policies are Allstate, Fidelity National, The Hartford and Travelers.
Flood insurance isn’t a highly profitable sector of the insurance business. However, having access to more than 800 thousand policy holders who may want to “bundle” their other policies, would give any company a huge competitive advantage. That is what the fuss is all about.
Regardless of the lobbying going on, the reform bills major backer and the chairman of the House Insurance Subcommittee has assured everyone that the reform has the main priority. The NFIP has to get back on track and be secured financially, to protect the home owners and the taxpayers.