GOP payroll tax bill wades into flood insurance fight

The House GOP payroll tax bill introduced Friday finds itself in the midst of a major lobbying battle being fought among the nation’s insurance companies.

The appearance of a knotty insurance issue in the must-pass bill has set off an industry scramble over the provision.

The bill is to come to a floor vote Tuesday in the House and could form the basis of a payroll tax extension compromise between the House, Senate and White House.

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The legislation extends the National Flood Insurance Program (NFIP) for five years and includes a provision vigorously opposed by State Farm insurance but supported by others in the industry. The NFIP extension was included because the GOP believes it reduces the deficit by $5 billion. 

But, buried inside lies language that forces the federal government to stop administering former State Farm policies and allowing other private insurance companies to take them over.

After State Farm got out of the flood insurance business, the federal government took over their former policies. Other insurers are eager to get access to the policies but State Farm argues that its independent agents will lose other business if rival insurers are granted access to the flood policies.

The language at issue was in a House-passed NFIP bill but was not in a Senate Banking Committee version.

It states that the Federal Emergency Management Agency (FEMA) must reduce the number of policies it manages until the total number is no more than 10 percent of all flood policies.

State Farm notes that in a letter to Rep. Randy Neugebauer (R-Texas) this summer, FEMA acknowledged that it actually saves money by managing the policies rather than farming them out to private insurance. Flood insurance is backed by the NFIP.

“The provision in the proposal regarding redistribution of NFIP Direct policies runs contrary to the committee's goal of finding ways to fund an extension of the payroll tax cut,” State Farm spokesman Phil Supple said. “FEMA estimates $50 million taxpayer savings would be lost in each year on any long-term extension.”

In contrast, the group representing other insurers in the fight gives the payroll tax bill a thumbs up.

“We are very supportive of the bill,” Jessica Hanson of the Property Casualty Insurers Association of America said Friday.