Among the many other issues tied up in the result of the midterm elections and the ensuing new Congress—and one of the major issues on the minds of homeowners across the country—is what’s going to happen flood insurance. As it currently stands, The National Flood Insurance program, which Inman calls “an ailing 49-year-old insurance plan” will lapse in December “without re-authorization or partisan support of the so-called ‘21st Century Flood Reform Act.’”
Part of the issue that has led the bill to “languish in the Senate since late last year” is, not surprising: Republicans and Democrats are on opposite sides. “The GOP-led House voted in favor of the bill 237-189 despite significant opposition from coastal Democrats, who believe premiums on high-risk properties could skyrocket under the reform initiative,” they said.
So what’s really at stake? A lot, potentially.
Premiums—If the “21st Century Flood Reform Act” passed as is, “premiums, which on average cost homeowners $650 annually but can spin out of control in coastal regions, would be capped at $10,000,” said Inman.
A lapse—If the program lapses without signoff by November 30, the National Flood Insurance Program wouldn’t be able to sell or renew flood insurance policies. “Right now our financial position is okay – but we wouldn’t be able to borrow from the U.S. Treasury to pay claims for our existing policies,” said David Maurstad, chief executive of the National Flood Insurance Program, on the Texas Standard.
Even more people could end up without flood insurance—Despite the risks associated with having a home in a coastal area, many people still opt to forgo flood insurance in places where it is not required by law. “One recent study suggested about two-thirds of people in areas that have a 1 percent chance of flooding in a given year do not have flood insurance,” said the Citizen-Times.
Common reasons laid out by the publication include: homebuyers “don’t recognize the risk” because they don’t understand “flood maps and may never inquire whether they have anything to worry about; Banks and mortgage companies don’t always require it; there’s a myth that the government’s going to bail you out; and they think their homeowner’s insurance will cover flood damage. Almost all policies exclude claims from flooding.”
Flood insurance may ultimately have to look to privatization—Some say this is a much better answer, anyway. “The National Flood Insurance Program’s (NFIP) financial woes stem from the fact that it consistently fails to charge program participants rates that cover the full risk of flooding to their properties,” said Inside Sources. “As a result, the NFIP’s revenues from premiums don’t even cover its claims during an average year. The Congressional Budget Office has calculated that the program is bleeding $1.4 billion annually. In years of catastrophic flooding, the NFIP has needed to borrow from the U.S. Treasury to honor its commitments to policyholders. Its debt now stands at about $20.5 billion, and that’s after Congress forgave $16 billion of the program’s debts last fall. Unless action is taken, the NFIP’s finances will only deteriorate in the wake of the 2018 hurricane season and with each passing year.”