In September 2017, the president of the United States signed legislation to extend, by three months, the expiration of the nation’s federal flood program, the National Flood Insurance Program (NFIP). In doing so, the program – absent of much needed reforms – remains intact, authorizes emergency funding for disaster relief, and gives lawmakers additional time to pass a multi-year reauthorization measure that includes long-term solutions for a program currently $25 billion in debt. What this means for property owners in high-risk flood zones subject to the mandatory flood insurance purchase requirement is that the time has never been more critical to have an accurate assessment of flood risk.
For this group of flood insurance consumers, knowing a property’s actual flood risk determines whether or not they pay too much or not enough for the cost of coverage. Therein, lays a fundamental problem with the NFIP and the need for significant reforms or a complete overhaul to ensure fairness in the evaluation of flood risk and the imposition of flood insurance requirements.
The NFIP issues impacting the nation’s taxpayers and property owners in flood-prone areas largely hinge on four factors, as described by Smarter Safer, a coalition of taxpayer advocates, environmental groups, insurance interests, housing organizations, and mitigation advocates, in a letter to congressional representatives urging NFIP reform.
- Accurate mapping–FEMA must be required to ensure its floodplain maps give an accurate picture of future flood risks including at the property level.
- Mitigation investments–any reform bill must include investments in mitigation so that the most at-risk properties have the ability to reduce their risk.
- Continued move to solvency–any reform bill must continue to move the program to fiscal soundness by gradually phasing properties to risk-based rates.
- Consumer choice–any reform bill must include clarification of current law that homeowners can satisfy mandatory purchase requirements with private flood policies.
Read the letter in its entirety.
Dear Majority Leader McConnell, Minority Leader Schumer, Speaker Ryan, and Minority Leader Pelosi: SmarterSafer- a broad based coalition of taxpayer advocates, environmental groups, insurance interests, housing organizations, and mitigation advocates- is pleased to see the Administration’s proposal on flood insurance reform contained in the letter from OMB dated October 4, 2017.
The Brookings Institution, a national nonprofit public policy organization, compiled an overview, and timeline of sorts, that explains the controversy and concern surrounding the nation’s flood risk management program. A few takeaways:
- The program attempts to do more than a traditional insurance program. It is meant to be a comprehensive national flood risk management program, with components of insurance, risk assessment, flood hazard mitigation, and community-level land use and building code requirements aimed at reducing and managing flood risks into the future.
- The federal agencies responsible for enforcing the mandatory purchase of flood insurance have found it difficult to enforce their rules implementing federal law in this area.
- Why don’t premiums cover costs? The simple answer is that premiums are too low, given the risks that the program takes. This mismatch reflects political resistance against premiums that actually reflect flooding risks, flawed mapping methods that don’t accurately assess flood risks, lax enforcement of program rules, and the cycle of rebuilding damaged properties with NFIP payouts (often without risk mitigation such as relocations, removals or building elevations), only to be flooded again. Further, obsolete FEMA flood-risk maps tend to distort premiums, hinder property relocation to safer areas, and obscure the risk of flood-prone areas from consumers.
- Attempts to reform NFIP essentially reflect the struggle to balance two conflicting goals: keeping the program financially sound and keeping insurance affordable. Actuarially sound rates would communicate flood risk to homeowners and contribute to the program’s financial sustainability, but could result in higher premiums that depress property values and lead to lower program participation. On the other hand, keeping rates affordable could protect participants from financial hardship, but may detract from the program’s sustainability.
- Environmentalists, taxpayer groups, and other reformers have pushed to raise premiums to better reflect flood risks and limit repetitive loss payments.
Read the article in its entirety.
The recent devastating hurricanes have, once again, focused attention on the National Flood Insurance Program, long a subject of controversy and concern. The program was to expire on September 30, but Congress recently extended it until December 8, 2017. Here are the basics on the program and the challenges it faces.
Take a deeper dive into the articles referenced in this post or merely contact AmeriFlood Solutions for an evaluation of your high-risk flood zone designation.