The National Flood Insurance Program (NFIP) is deep in debt. In June of this year the figure was $25 billion. After two major hurricanes and a minor one hitting Gulf states, that debt will go even higher.
Guy Rawlins who is the senior vice president, property practice leader of Brown & Riding Insurance Services put it in perspective. “We need to get more people buying flood insurance. If the only people who buy it are the ones that always have losses, then clearly the NFIP is going to struggle to survive. If we made it easier and more attractive for people to purchase, the program would have a bigger premium pot from which to pay the losses of a few.”
He points out that lenders only require insurance from those in a 100-year flood zone and that the FEMA flood maps are outdated and floods outside the 100-year zone actually come more often than the current statistics say.
Plus, more people are moving into flood prone areas. Houston — for example — is twice the size it was a couple of decades ago and with more people comes more concrete and fewer places for water to go.
Rawlins said, “A lot of development has been built right on the flood plain — on concrete pads with no elevation. Building codes are important and we need to do anything we can to increase flood protection and mitigation. In the US, our barrier islands are beautiful places to live and go to a resort — but there’s a price to pay for wanting to be there. The islands are susceptible to adverse weather and flooding, so insurance and risk mitigation should be a priority. It’s not a Government responsibility, but that’s where the pressure has gone.”
President Trump agrees and wants to cut the NFIP’s insuring new homes being built in areas that are at the most risk of flooding. As expected the decision — sent as a suggestion to Congress by White House Budget Director Mick Mulvaney — is controversial. He says after 2020 the NFIP should no longer insure new construction in those disaster zones. Those building homes in those areas could purchase expensive private insurance — if it’s available.
Congress — as we will soon see — is working toward getting private insurance more involved and more affordable.
Also under this proposal the NFIP would continue to insure homes — even after 2020 — within the 100-year flood plain but not outside that area. Homebuilders say it will do away with construction in huge swaths of Florida and Louisiana. It could impact construction along the Eastern Seaboard as well.
While homebuilders are against the idea, environmentalists are saying Trump is making a smart suggestion and want it to become reality.
National Association of Home Builders chairman Granger MacDonald said this will “harm local communities and impair economic growth. It would simply prevent home builders from being able to provide safe and affordable housing. Why does OMB needlessly propose to penalize new construction?”
The plan also gives the Federal Emergency Management Agency (FEMA) — who runs the NFIP — the authority to cut off those homes within the 100-year flood plain that flood repeatedly.
Another spokesperson for the homebuilders is Elizabeth Thompson. She said it’s going to take too long for a private market to develop so this is a really bad idea. “Many lenders do not consider private insurance as equivalent or better than the NFIP’s coverage and therefore do not accept it. There are bills in the House and Senate to ease those requirements; however, it may take years for a private market to develop.”
Environmentalists don’t see it that way. Laura Lightbody heads the Flood-Prepared Communities project at Pew Charitable Trusts and she says this movement is needed.
“This sends a signal to developers and builders, and people living in flood-risk areas. We want less people in harm’s way, and less development in these coastal areas and riverine areas,” she said.
Lightbody also adds that a directive such as this could give local governments an easier path to restrict coastal development. The tight insurance rules “gives them political cover to make those decisions.”
And to help speed this concept along, the House of Representatives has passed bipartisan legislation to encourage the sale of private insurance in those high-risk areas. It adds flexibility for both insurers and regulators to satisfy the insurance requirements of lenders in those areas.
The Flood Insurance Market Parity and Modernization Act (HR 1422) is a bipartisan bill introduced by Florida Republican Rep. Dennis Ross and Florida Democrat Rep. Kathy Castor.
“The recent major flood events across the country have provided a much-needed sense of urgency to our efforts to provide consumers with private sector flood insurance options. Currently, many homeowners in Florida and across the country face unaffordable flood insurance premiums and a lack of coverage options, largely due to federal regulatory barriers that give the National Flood Insurance Program a harmful monopoly over the marketplace. The legislation will greatly benefit consumers in flood prone areas because it will remove these unnecessary barriers and allow more private flood insurers to enter the market, leading to increased competition and more affordable, comprehensive policies,” Ross said.
He then encouraged the Senate to pass similar legislation introduced by Nevada Republican Sen. Dean Heller.
Source links: Insurance Journal, Insurance Business America, Bloomberg