The countdown is on, yet again, for NFIP Reauthorization, the renewal of the National Flood Insurance Program set to expire May 31, 2019. Both the U.S. House of Representatives and U.S. Senate must pass legislation to continue the federal program and will consider changes, improvements, short-term or long-term renewal. Last month’s U.S. House Committee on Financial Services hearing discussed the state of the National Flood Insurance Program, including affordability challenges and reforms since the NFIP’s inception in 1968. Here are a few notes, including testimony excerpts from The Pew Charitable Trusts, and the entire hearing webcast.
From Boston Agent Magazine:
Although recognized as an important program for homeowners, the housing market and the economy, the NFIP has received 10 short-term extensions since 2017’s fiscal year, according to California representative and Committee Chair Maxine Waters. These short-term extensions have done nothing but “kick the can down the road” in terms of keeping the program sustainable. These issues have only grown as flooding events from severe storms have increased in frequency and severity throughout the U.S.
Representatives on both sides of the aisle claim that they are ready to work together and find a solution, but conflicting views on the issue might end up leading to another temporary extension.Read the entire article here.
…in 2018, FEMA found significant affordability challenges for lower-income homeowners, as many that are least able to afford higher premiums tend to live in the highest flood hazard areas. FEMA found that “the combination of higher premiums and lower incomes in the SFHA creates affordability pressure on households.”Read the entire article here.
From Velma Smith on behalf of The Pew Charitable Trusts Flood-Prepared Communities Initiative:
There are many pieces to the NFIP puzzle, and one is central to all that this program does or strives to do: flood maps.
The Flood Insurance Rate Maps (FIRMs)serve a greater purpose beyond identifying locations where flood insurance is required for federally-backed mortgages and informing the federal flood insurance rates.
Previous spending on flood maps has been far from adequate, resulting in too few modern, digitized maps and important map products for many areas of the country.
We need good maps everywhere, not perfect maps here and there.
…an understanding of flood risk is fundamental to preparedness and protection,…
This lack of awareness or understanding can have devastating consequences for families and their property.
Upfront disclosures about flood risk—available before financial commitments are made—could change those results. Informed about a structure’s loss history, for example, homebuyers could consider alternative neighborhoods, purchase flood insurance, or investigate mitigation options, such as landscaping improvements, building elevation, or special placement of electrical equipment.
Rates and Affordability
…Therefore, to the extent that Congress makes no changes to the structure of the program but offers new risk rate relief to policyholders, it may increase its current financial shortfall and threaten the program’s ability to pay claims. On the other hand, to the extent to which rates are perceived as too high, lower-risk policyholders may drop coverage, thereby increasing the pressure to raise rates on the remaining properties.
Repeatedly Flooded Properties
This subset of insured properties that flood over and over again have strained the program’s finances. In some years, repetitive loss properties account for as little as one percent of the program’s policyholders but make 25 to 30 percent of its claims. Since the National Wildlife Federation first drew attention to this imbalance in the 1990s, Congress, FEMA, the Government Accountability Office, and others have probed the problem, documenting multiple cases of properties repaired and rebuilt numerous times at the NFIP’s expense.
In 2009, the Department of Homeland Security’s Inspector General (IG) said that about one in ten repeatedly flooded homes had cumulative claims exceeding the value of the house. The IG also said the increase in new repeat loss properties was outpacing mitigation efforts by a factor of ten to one. At that time, the universe of these properties was estimated to be growing at roughly 5,000 per year. A 2016 report by Resources for the Future and the Wharton Risk Center notes that claims filed by repetitive loss properties run 5 to 20 percent higher than the average of claims overall.Read the complete testimonial statement here.
Investment in Mitigation
Study after study tells us that in order to curb post-disaster spending, we must increase pre-disaster investment. The experts who have evaluated real flood preparedness projects tell us that for every dollar that FEMA and other federal agencies have put into building stronger and smarter before the next flood, we get a return on investment averaging $6.
Webcast of the U.S. House Committee on Financial Services Hearing:
U.S. taxpayers, particularly flood insurance consumers, must monitor the twists and turns of the NFIP Reauthorization process and remain proactive about flood risk. If you own, manage, or represent, or rent property subject to flood insurance requirements,
- Stay informed of flood insurance rate map changes in your area.
- Conduct a flood risk evaluation, a proactive strategy to protect the real estate investment and to verify whether the structure is built to minimize the risk of flooding.
Contact Flood Insurance Solutions for more information including a complimentary flood risk evaluation performed by an expert team of flood risk professionals.