Aug 30, 2011
No, there’s still no deal on flood insurance
30 Aug 2011
Posted by Andrew Kantor
The National Flood Insurance Program expires on September 30, and no, Congress has not yet decided how it’s going to extend the program. According to this article in the Wall Street Journal, there’s unlikely to be a long-term agreement before the expiration date.
Private insurers won’t offer flood insurance to areas where flooding is likely, notably parts of Texas and Florida, so the NFIP was created to reduce reliance on federal disaster aid. The idea was that local communities would create (and enforce) laws to map flood plains and reduce the danger to new properties, and the federal government would offer flood insurance.
Unfortunately, rather than reduce the flood danger, the availability of inexpensive insurance (premiums are about $600 per year) encouraged people to move to flood zones. In 2004, the plan paid out $200 million per year just for “repetitive-loss properties.”
Combined with the cost of Hurricane Katrina, today the NFIP is almost $18 billion in debt.
So Congress is wrangling with the issue of premiums. The $600 per year is “widely considered to be inadequate for the risk that taxpayers face,” as the Journal put it. The question is how much and how quickly those premiums should rise.
The balance to be struck is giving homeowners protection from devastating financial loss, while not having taxpayers foot the bill for people who build and rebuild in the same flood-prone locations.
But the bottom line is that, without flood insurance being available, thousands of contracts will be at risk as lenders withhold mortgages until the properties are covered.
Although there will almost definitely be some kind of short-term extension to the NFIP, but that only means that we’ll be having the same discussions and debate in a year or two.
That’s why NAR has been asking Congress not only to extend the program for at least five years, but also endorses…
- Improving the accuracy of flood insurance rate maps used to determine which properties require flood insurance
- Continued inclusion of comprehensive coverage for residences including rental properties and second homes; and
- Reforms that provide “full risk” premiums for most repetitive loss structures in many states.