NFIP Reforms — A Tax Credit for Premium Relief

Congress has struggled with financing the National Flood Insurance Program (NFIP) for a couple of decades. Hurricane Katrina in 2005 put the NFIP into over $25 billion in debt and it never recovered.

Trying to right the ship, in 2018 Congress forgave $16 billion of that debt. Yet today, the NFIP still sits $20.6 billion in the red.

The NFIP is overseen by the Federal Emergency Management Agency (FEMA). To try to address the inequities of flood insurance premiums compared to the risk, FEMA put Risk Rating 2.0 into effect a couple of years ago.

It caused flood insurance rates to rise significantly for some homeowners in high risk areas and has been very unpopular with homeowners saddled with having to purchase flood insurance, and with some powerful legislators in Congress.

Two of the critics of Risk Rating 2.0 are New Jersey Democrat, Sen. Cory Booker and Louisiana Republican, Sen. Bill Cassidy. They’ve put a bill together and submitted it to the U.S. Senate for consideration.

It’s designed to give some relief to low and middle-income homeowners.

If passed by both houses of Congress, the Flood Insurance Affordability Tax Credit Act would give a 33% refundable tax credit to homeowners who are eligible. The idea is to use the tax credit to offset a rise in premiums. It will only apply to primary residences. Also, married taxpayers filing separate returns will not be eligible for the tax credit.

“While we work to fix the broken system, this tax credit provides relief to current policyholders and provides a path for others to re-enroll in the program,” Cassidy said.

Booker said the changes are very important to the people in his state, people who are facing ever growing and high insurance costs and many of whom are dropping their flood insurance.

“This bipartisan legislation will provide much-needed relief for low- and middle-income households, particularly in New Jersey,” Booker said. “This legislation is one important step forward as we work to expand access, lower costs, and protect New Jersey families from extreme weather and flooding.”

Both senators pointed out that the high rates that came out of Risk Rating 2.0 have caused a lot of people to drop their flood insurance because it isn’t affordable.

Source link: Insurance Business America — https://bit.ly/41tCn9l