Column: A Look At Flood Insurance In 2020

Many leaders in the insurance industry anticipated that 2019, much like 2018, would be a tumultuous year for flood insurance. They were correct, and uncertainty will continue into 2020. Congress's actions (or inactions) influence the whole industry.

More recently, the NFIP has been suffering from a lack of a long term reauthorization by Congress. The program has been propped up by short term extensions and proposed reform measures that have received mixed reactions from all industries.

To add to the uncertainty, FEMA's new rating system, Risk Rating 2.0 which has seen immense pressure by Congress to be halted, has now been postponed into 2021. What's ahead in 2020? It's important to review 2019 to see where 2020 takes us.

Attempts at reform of the NFIP started at the beginning of 2017. But after Hurricane Harvey, Congress focused on disaster appropriations and passed multiple short term extensions. Back in May, the House Financial Services Committee passed a flood reform and reauthorization bill unanimously.

Within the House bill, key pieces of reform include a five year reauthorization of the NFIP and access to claims information for NFIP and private flood policies. Additionally, the House bill includes the Private Market Parity Act language, which allows those who leave the NFIP for a private policy, to return to the NFIP with no penalty such as the loss of grandfathering.

In July, the Senate released the NFIPre bill which includes some similar provisions to the House bill. However, it includes controversial measures that have been long standing issues with the House such as capping Write Your Own (WYO) compensation and does not include the Private Market Parity Act language.

With two conflicting bills, there has not been a full vote of the House or Senate on either. There appears to be a stalemate with no clear path forward. There is consensus that no long term reauthorization will occur until after the 2020 election. This means more short term extensions, with possible short expirations as Congress remains indecisive on the future of the NFIP.

As we near 2020, politicians and stakeholders have turned their attention to Risk Rating 2.0 which has been a planned redesign on how FEMA will rate structures. FEMA recently postponed Risk Rating 2.0, which was supposed to be implemented in October of 2020.

On Nov. 1, a letter was sent by a coalition of legislators asking FEMA to consider the consequences of perceived rate increases associated with Risk Rating 2.0's implementation. On Nov. 7, FEMA postponed Risk Rating 2.0. Questions have been raised on whether the new rating structure will ever be fully implemented. There will be more to come on Risk Rating 2.0 in 2020, with more information on how the new rating scheme could look.

In January, lending regulators issued their final guidance on how to accept a private flood policy, which became effective July 1, 2019. Even with the new rule, some questions remain that the industry hopes to receive answers to. The final rule breaks the acceptance of private flood insurance into essentially two types of policies, those that lenders must accept (mandatory acceptance), and policies lenders can consider, but don't have to accept (discretionary acceptance).

In 2020, the new rule will require clarifications. Some lenders have said they will accept no discretionary flood policies, and some private carriers have attempted to provide compliance aids.

The private market is also undergoing changes. As mentioned earlier, legislation that allows the continuation of grandfathering after leaving the NFIP, along with the elimination of other penalties that now exist remains elusive. Legislation has also been proposed to reinstate the ability to move from the NFIP to a private flood policy mid-term, which was rescinded by FEMA in early 2019.

There is debate if either of these provisions will substantially increase the private market participation, but no action has been taken on either. Instead, many see a turbulent private flood market, with a decrease in capacity and increase in some rates.

2019 has determined the direction of the flood marketplace for 2020. With Congressional inaction, postponement of new NFIP programs, and a new frontier in private flood, uncertainty continues to exist. Flood is America's most common peril, and insuring against it has never been easy. Going in to 2020, insuring against flood will still be one of America's greatest challenges, with no single easy solution.

Joe Rossi is chairman of the Massachusetts Coastal Coalition.

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