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Flood Insurance Extension Included in Controversial Payroll Tax Cut Bill

Source: A.M. Best - Jeff Jeffrey

Posted on 15 Dec 2011

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A little-known provision in the payroll tax cut bill passed by the U.S. House of Representatives on Dec. 13 would extend the National Flood Insurance Program for an additional five years. But the bill will face extensive opposition in the Democratic-led Senate, which has targeted the payroll tax cut legislation for a number of reasons. Democrats have said the bill would unfairly reduce the number of weeks that people can receive unemployment benefits and that it would force a quick decision on a controversial oil pipeline.

Under the Republican-backed bill, titled the "Middle Class Tax Relief and Job Creation Act of 2011," the NFIP would be extended through Sept. 30, 2016. That extension would help to end much of the back-and-forth over whether and how the program should be reformed, given that it is nearly $18 billion in debt.

The NFIP has been one of the most closely watched insurance issues on Capitol Hill this year. Congress has passed several short-term extensions in recent months. Last week, the U.S. Senate passed an extension to the NFIP that would keep it alive through May. That measure is currently before the House. The NFIP is currently set to expire on Dec. 16 (Best's News Service, Dec. 8, 2011).

The payroll tax cut bill would make several tweaks to how the NFIP operates, including giving the NFIP administrator the authority to temporarily suspend its mandatory purchase requirement, allowing private flood insurance to fulfill the purchasing requirement and changing how rates are set in newly mapped areas.

The insurance industry has pushed for a long-term extension to the NFIP, arguing it would help promote stability in the market.

Matt Gannon, assistant vice president of federal affairs at the National Association of Mutual Insurance Companies, told Best's News Service last week his organization has been working with lawmakers to develop a long-term solution for the program. Gannon said he was working with Sen. David Vitter, R-La. and Sen. John Tester, D-Mont., to get senators to sign onto a letter urging the chamber's leadership to pass a long-term extension that makes reforms to the program that would put it on better financial footing.

While Gannon said extending the program through May was a positive step, in practical terms the extension may not be as long as it seems. "It's not as simple as notifying people that the next day they can't sell flood coverage any more, you need to put the process in place about 10 days earlier. So really, every time you have a one-month extension, it's really like a 20-day extension," Gannon said (Best's News Service, Dec. 8, 2011).

But despite the industry support of the program, it appears unlikely it will clear the Senate. Earlier, Senate Majority Leader Harry Reid said on the Senate floor that the bill was "dead on arrival" and President Barack Obama has threatened to veto. Reid is pushing for a quick vote on the bill.

"Republican leaders have spent weeks drumming up support for legislation they knew was dead on arrival in the Senate," Reid said. "Now it's time to get this vote over with, so real negotiations can begin to prevent a tax increase on 160 million middle-class Americans."