NFIP Reauthorization May 31, 2010 Frequently Asked Questions

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1 Table of Contents Background Consumer Impact New Business Policy Renewal Claims Handling FEMA NFIP Reauthorization May 31, 2010 Frequently Asked Questions Background Q: What is happening with the National Flood Insurance Program (NFIP) and flood insurance? A: Allstate Insurance Company issues flood policies as part of the National Flood Insurance Program (NFIP) under the authority of the federal government. The NFIP operates under authority from Congress. This authority has to be renewed periodically. The authority to issue new policies is currently awaiting Congressional renewal. The authority expired at midnight on May 31, If a renewal is not granted before the expiration, the NFIP experiences a hiatus--a period without authority to issue new policies, issue increased coverage on existing policies, or issue renewal policies until Congress reauthorizes it. Q: Is this inaction on Congress part due to the recent snowstorms, rains, or other flooding in parts of the country? A: No, the renewal timeline is not related to any recent or past storms. Since the NFIP is a federal law with an expiration date, Congress needs to periodically renew the program. When a bill to renew the program is set forth in Congress, Congress decides what date the program should be renewed and considered for reauthorization. The current NFIP was modified with the Flood Insurance Reform Act of 2004 and extended in April to continue through May 31, Q: Why can t my insurance company just issue me a flood policy? Why do we need an act of Congress? A: Since its inception over 40 years ago, the federal government has been responsible for the NFIP. As part of the Write Your Own (WYO) flood insurance program, NFIP asks insurance companies, such as Allstate, to help administer the policy issuance and servicing of the federal government's flood insurance program. Allstate, like all other WYO insurance companies, cannot issue NFIP flood policies unless they have the authorization to do so. Q: Has this lapse in Congressional authority for the NFIP ever happened before and for how long? Did Congress make the reauthorization retroactive before? A: Yes, there have been several lapses in NFIP s authority in the past, and, in each of those lapses, which ranged from days to several weeks, Congress has

2 reauthorized the NFIP retroactively. The most recent lapse occurred on March 28, 2010, and lasted through April 15, Q: Why did this hiatus happen? Didn t Congress and Allstate know the deadline was approaching? A: Congress attention has been diverted to other economic situations. However, there have been several lapses in NFIP s authority in the past, and, in each of those lapses, which ranged from days to several weeks, Congress has reauthorized the NFIP retroactively. Q: What happens if Congress does not make reauthorization retroactive to May 31, 2010? A: New policy applications would be accepted during the lapse dates, but new business would not be issued during the period of the lapse. Any new flood insurance policies that require a 30-day waiting period would take effect when both the 30-day waiting period has ended and Congress has reauthorized the NFIP. Q: What happens if this hiatus is lengthy? A: If Congress does not grant the NFIP authorization within a reasonable period of time, premium payments that were received on or after May 31, 2010, will have to be refunded, and Allstate will not be able to pay out flood claims. Q: How likely is it that Congress will act quickly to reauthorize the program? A: We have been in frequent contact with members of Congress and their staffs regarding the NFIP s reauthorization. It is clear from our meetings and discussions that Congress wishes to reauthorize the NFIP. Q: How likely is it that Congress will make the reauthorization retroactive to May 31, 2010? A: FEMA believes that it is likely that Congress will make the reauthorization retroactive to May 31, There have been several lapses in authority for the NFIP in the past. In each of those lapses that ranged from days to several weeks, Congress has reauthorized the NFIP retroactively. Consumer Impact Q: How does the NFIP s hiatus in authority affect customers? A: A limited interruption would only affect property owners who need to renew policies in June, new home-buyers who must purchase flood insurance as a condition for obtaining mortgages from federally regulated lenders, and property owners refinancing existing mortgages that must purchase or renew such coverage. Most of the 5.5 million flood insurance policyholders nationwide should not be affected. Flood insurance policies that are now in force will remain in force, and claims under those policies can continue to be paid after May 31, 2010, as long as Congress keeps the program properly funded. However, during the hiatus Allstate does not have authority and will not be able to issue new policies, issue increased

3 coverage on existing policies or issue renewal policies. In the unlikely event this hiatus lasts for an extended period of time and the customer s policy comes up for renewal, we may not have authority to renew the policy. We expect that Congress will re-authorize the NFIP and that the reauthorization will be made retroactive to May 31, The hiatus is expected to be brief, and Allstate continues to encourage the resolution of this issue. Q: With this hiatus, will a customer s property still be covered? A: If, based on the waiting period rules of the NFIP, the flood policy was in effect on or prior to May 31, 2010, there would be coverage under the terms and conditions of the NFIP policy. This limited interruption should only affect property owners who need to renew policies in June, home-buyers who must purchase flood insurance as a condition for obtaining mortgages from federally regulated lenders, and property owners refinancing existing mortgages that must purchase or renew such coverage. Please visit and for more information. New Business Q: If payment is made on a new flood application on or before May 31, 2010, when will the customer have flood insurance protection? A: The starting date of any NFIP flood insurance coverage depends on the applicable flood insurance waiting period. Normal waiting periods still apply. Typically there is a 30 day waiting period for a flood policy to take effect. Even with this hiatus, new flood policies for which a properly completed application and premium payment is received by Allstate on or before May 31, 2010, may still be issued for coverage that will become effective after May 31, Claims made on existing policies and policies issued based on premiums received prior to the hiatus, will still be able to be processed without delay as long as Congress keeps the NFIP properly funded. Q: What happens if I make a change to a customer s existing policy or the customer s premium for a new policy is received by Allstate on or after June 1, 2010 and the customer suffers a flood loss before Congress reauthorizes the program? A: Allstate will hold premium payments for all new policies or for endorsements for added coverage received during the hiatus. Claim payments for losses suffered during that time cannot be made until Congress retroactively extends the NFIP authority. However, Allstate will proceed with investigating the claim under a non-waiver agreement, up to the point of payment. Under the non-waiver agreement, the company will reserve the right not to pay the claim if Congress does not reauthorize the NFIP.

4 Q: A customer is closing on a house in June and the mortgage lender is requiring flood insurance at closing. What could happen if the premium and application aren t received by Allstate by May 31, 2010? A: The premium will be held by Allstate so that the policy can go into effect at the earliest date. If the reauthorization to issue flood insurance policies under the NFIP is granted retroactively, the policy will be issued to be effective as of the date of the closing of the loan. If Congressional reauthorization is granted retroactively, any claim for insured losses suffered from that effective date onward will be honored by the NFIP, even if the reauthorization authority is granted after the date of such losses. Q: What if the customer s payment is in the mail and is postmarked before May 31, 2010? A: A payment mailed with a postmark before May 31, 2010 will not guarantee that the customer will beat the deadline. A receipt of the premium payment on or before May 31, 2010, will be the deciding factor, not a postmark. Policy Renewal Q: A customer s flood insurance policy is up for renewal in June. How can I make sure that the payment gets in by the deadline? A: If the renewal was billed prior to the hiatus, premium can be received at any time and the renewal will be issued. If the renewal was not billed prior to the lapse, the premium payment must have been received on or before May 31, 2010, in order to renew during the hiatus. Q: What happens if the premium payment for a policy renewal is received by Allstate on or before May 31, 2010 and the customer suffers a flood loss before Congress reauthorizes the NFIP? Will the customer be covered? A: Even during the hiatus, claims for losses occurring during the hiatus, on existing policies and on policies issued based on premiums that were received prior to the hiatus, are to be processed without delay, provided there are federal funds available. Q: What happens if the premium payment for a policy renewal is received by Allstate on or after June 1, 2010 and the customer suffers a flood loss before Congress reauthorizes the NFIP? Will I be covered? A: If the renewal was billed prior to the hiatus and the premium payment received on or after June 1, 2010, the renewal will be issued and claims will be processed without delay. If the renewal was not billed prior to June 1, 2010, claim payments for losses suffered during that time cannot be made unless Congress retroactively extends the NFIP authority. However, Allstate can proceed with investigating the claim under a non-waiver agreement, up to the point of payment. Under the nonwaiver agreement, Allstate will reserve the right not to pay the claim if Congress does not reauthorize the NFIP

5 .Claims Handling Q: If a premium is received during the hiatus for new business and renewals, how should claims be handled for losses that occur during the hiatus and before Congress reauthorizes the NFIP? A: Allstate will proceed with the investigation of a claim up to the point of claim payment under a non-waiver of the company s right to deny the claim if the program is not reauthorized retroactively. Q: Do companies have authorization to issue advances and claim payments for policies for which premiums were received on or after June 1, 2010? A: No, Allstate does not have authorization to issue such advances and claim payments. The premiums are considered federal funds and are not available until Congress retroactively extends the authority to enter into new contracts for flood insurance. If the premium payment for renewals, or new applications or endorsement with the accompanying premium payments are received on or before May 31, 2010, coverage can be made effective after that date under the existing authority. Q: What basis in the existing statutory authority do you have for making that statement? Also, how can Allstate explain to customers that there is continuing coverage for those who paid before June 1, 2010, while there is no coverage for those who were unable to buy or renew or pay for it before June 1, 2010? A: The authorization is found in 42 U.S.C. 4026, which refers to a new contract for flood insurance under this chapter being entered into. It is FEMA s interpretation that a contract is entered into when the renewal premium, or the premium for new business together with a properly completed application, is received by the WYO company, even if the effective date is later. Q: When is payment considered received by May 31, 2010? Would certified mailing of the premium before June 1, 2010, be considered receipt of premium? A: No, although the certified mailing rule applies to the calculation of any waiting period, the insurer must still receive the premium payment on or before May 31, Q: What documentation does an agent need to give a homebuyer during the lapse in reauthorization? A: Agency owners should provide the same documentation as he/she normally gives flood insurance customers for loan closings. In addition, Allstate will require an additional notice be provided disclosing the reauthorization issue. FEMA Q: Will FEMA issue an extension of the proof of loss requirement for claims? A: A proof of loss is required within 60 days of the loss. If claims are investigated under a non-waiver agreement, the proof of loss should not be delayed. If needed,

6 we will ask for individual waivers from FEMA. There is no guarantee in any instance FEMA would grant such a waiver. If there is a major event during the hiatus, FEMA might consider a blanket extension of the time to file a proof of loss. FEMA has issued such blanket extensions after hurricanes and other major events in the past. Q: How will FEMA calculate the 30-day waiting period during the hiatus? A: The waiting period will start under the normal rules as contained in of 44 CFR and in the Flood Insurance Manual. If there is no reauthorization by Congress within a reasonable period, then WYO companies and the NFIP s servicing agent will return the premium to the payor. Then, once Congress re-authorizes the NFIP, the consumer will have to resubmit the premium, subject to a new waiting period. Q: How will I be notified when the NFIP is reauthorized? A: The FEMA Web site will announce the reauthorization. Because this could potentially affect millions of homeowners, the media will most likely cover this announcement. In addition, you will also be notified internally about the reauthorization.