Pertinent Perils

Following an earlier post, the U.S. Senate approved a 30-day extension in the National Flood Insurance Program. I am betting that on Day 29, we will still have no resolution as to the Program’s status on a longer-term basis. Congress appears to favor stop-gap measures rather than dealing with the issues in a way that would allow for businesses to plan their risk management programs and insurance coverage.

Consistent with its past practice, Congress allowed the expiration date of the National Flood Insurance Program to pass without timely action, allowing the program to lapse. “Failing to act in time – again – and allowing the National Flood Insurance Program to expire is disconcerting,” said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies. “If nothing else, this episode should make it clear that short-term extensions, which can be blocked by any Senator or congressional caucus, are untenable.” The NFIP was brought to the Senate for a vote just days before the program was set to expire, leaving inadequate time for the procedures required to renew the program. If recent history is any guide, the lapse will be of short duration, as the most recent extension was authorized at the end of December after the program had lapsed for nine hours. Nevertheless, after flooding in areas affected by the three blizzards that struck the eastern states this past month, Congress’ apparent indifference to the issue of flood insurance and disaster mitigation is disappointing.

House Financial Services Committee Chairman Barney Frank and Financial Services Housing Subcommittee Chairwoman Maxine Waters have introduced legislation to extend the National Flood Insurance Program (NFIP) through March 31, 2010. Ordinarily, I favor limited government and market mechanisms for insurance coverage and I think it is long since time that the NFIP be eliminated. NFIP is a disaster. Recall that in 2007, the Senate Banking Committee unanimously approved legislation to forgive nearly $20 billion in debt, which NFIP had incurred in 2005 to pay hurricane-related claims. However, while I believe that the federal government should get out of the flood insurance business, I think it should do so in a responsible manner.

The NFIP program is set to expire in September, peak hurricane season. This does not give homeowners and businesses sufficient time to put other coverage in place or private sector companies adequate notice to begin to underwrite such policies. So I think a short extension of the program is the only sensible thing to do.

The American Insurance Association (AIA) approved the proposed legislation. “While this extension does not fix the NFIP’s problems, it does help those living in flood-prone areas by making sure coverage continues to be available,” said Leigh Pusey, President and CEO of the AIA. “A short-term extension to keep the federal flood programme in place is the most prudent action for Congress to take. We also support Reps. Frank and Waters in their commitment to crafting new bi-partisan legislation that would implement much needed reforms to the NFIP.  AIA looks forward to working with the House Financial Services Committee as it writes an updated bill that will improve the program and restore its financial stability.”

The photograph, by the way, is the old astronomical clock in the center of Prague. When I lived in Switzerland, I spent nearly every weekend visiting a capital city in Europe, as I had the perfect base of operations. You could be in any European capital within an hour from Zurich. I took this photograph on an absolutely perfect day in Prague and I include the clock image with this posting, because it is rare that Congress doesn’t wait until 48 hours before program expiry to act. (Remember TRIA?)