Private flood insurers, at mean odds with the Department of Housing and Urban Development, yesterday threatened to withdraw from the federal flood insurance program, charging the government was trying to run the program high-handedly.
In a letter to HUD Secretary Patricia Harris, the National Flood Insurers Association angrily objected to changes in flood insurance policies proposed by HUD last month. The changes would establish competitive bidding for subcontracting by the insurers and sets up stringent financiak controls.
But most significantly, the proposed changes affirm the exclusive authority HUD has over the program - a position which the private insurers find intenable.
"The proposed rules alter and redefine the existing contractual relationship between (the government and the insurers) from that of a cooperative partnership type venture to one which reduces the industry pool to a subordinate, mechancial servicing and marketing entity." Said Samuel Weese, general manager of NFIA, which is the pool of 132 insurance companies that market flood insurance.
Weese said the insurance program was originally conceived in 1969 to be a partnership between government and private insurance companies. He charged HUD with exceeding its powers and called the rules changes unlawful. If the proposals are adopted, Weese said the insurers would stop writing new policies and would refuse to renew the existing 1!1 million policies after the end of 1977.
A HUD spokesman said the agency was not disturbed by the prospect of the private companies withdrawing.
If necessary, HUD officials said the government would be able to step in and take on the policywriting function themselves.
A major reason for the new regulations officials said, is the expansion of the flood insurance progam in recent years - the result largely of flood disaster legislation in 1873 which required flood harzard areas to purchase flood insurance in order to qualify for bank or government loans and assistance.
But this requirement was lifted in part in legislation passed by the Congress last month - a move which private insurers say means they will have to work harder to sell flood insurance and so should be left less, not more, fettered by government.
Another NFIA official, Edward Brinley, noted HUD's action comes just as the private insurers were beginning to assume a larger share in - and profit from - tje program. The government's subsidy of the insurance, which is what makes policies affordable under this special type and relatively rare form of coverage was originally more than 90 per cent but last year dropped to less than half of the shareable costs. More than $32 billion worth of flood insurance policies have been issued since the program began.
Under the provisions of the flood insurance act, the Secretary of HUD clearly has final authority over premium rates and guidelines for adjustment of claims. What the private insurers are objecting to in the new rules is the declaration by HUD that this power can be exercised without consultation with the private pool.