Getting Back to Reality

Congress ends the shutdown, but have
legislators learned anything? 

By Mark E. Ruquet

So, 16 days and $24 billion later the government is open for business, economic catastrophe was averted and a number of Washington pols have egg on their face. What did we get out of this? A lot of stress; a lot of waste in time and money; and maybe— just maybe—a little closer to getting a budget in place.

Insurance industry executives have to be feeling a combination of relief and stress with the end of the shutdown. On one hand, the credit and good faith of the American economic system took a hit, but didn’t fall off the cliff, saving their investments and unforeseen triggers to financial insurance instruments the carriers may not be aware of—a repeat of recent history when the mortgage backed securities market blew-up for AIG and bond insurers. On the other hand, this event has to concern carriers with the prospect of getting at least one industry issue resolved in their favor.

The conservative movement remains firmly entrenched and an obstacle to any legislation that smacks of government involvement in the private sector or smells of corporate welfare. The Terrorism Risk Insurance Act is case in point. We can hope Congress is no longer preoccupied with its fiscal kamikaze act, but one House faction’s steadfast opposition to increased spending and obsession with ditching what they dub wasteful government programs puts TRIA in their crosshairs.

Insurance associations and regulators have already come out swinging, attempting to catch legislator’s attention by underscoring TRIA’s importance not only to the industry, but also for the nation to keep commerce moving. However, the shutdown demonstrates one thing—legislators are in no hurry to get things done—unless it is urgent.

Many insurance association leaders are familiar with this road, and are under no illusion about where this ride will take them. Just don’t expect anything early, and if the latest fiasco is any indicator, one can expect any resolution to the extension of TRIA to come after its expiration—when it becomes urgent.

For many homeowners across the nation what has become urgent is the fight against astronomical rate increases for flood insurance that threaten to send many to the poorhouse if a dose of reality does not temper the current premium trajectory.

A recent letter from the National Association of Mutual Insurance Companies indicates the fissure between Washington and homeowners struggling with flood insurance increases. In it, Jimi Grande, senior vice president, Federal and Political Affairs, said its 1,400 member insurance companies, of which 25 percent are participate in the National Flood Insurance Program’s ‘Write-Your-Own’ program (they administer the program on behalf of NFIP, but assume none of the risk) “strongly oppose any efforts to delay implementation of these much-needed reforms.”

The reasoning is that the program is “billions of dollars in debt to the taxpayers” and rates need to “reflect the true cost of providing flood insurance coverage” putting the program “on a more fiscally responsible and sustainable course…” He adds, “...the government should not continue to mask the risks of living in a flood-prone area by delaying these much-needed reforms.”

In a bow to the criticism driving calls for the rollback of the Biggert-Waters Act, NAMIC says it supports “providing assistance on a means-tested basis for those who truly cannot afford the increased rates.”

Out here in the real world—no one is talking to middle-class homeowners about giving any help with paying for insurance. If the past is any guide, the “means-test” will be set so low that it will leave many homeowners in the same position they were before, unable to afford coverage and face economic ruin—or abandon their home. Fortunately, New York’s Sen. Charles Schumer and other representatives who are listening to their constituents on this matter understand these rate increases are unsustainable. However, homeowners should be under no illusion that the supporters of Biggert-Waters will use NAMIC’s letter as evidence of overwhelming support for the increases. 

Washington needs reminding that what looks great on an actuarial table will leave most homeowner’s tables empty. Some folks in Washington don’t get it. One only needs to look at the shutdown for proof.