Flood Insurance Program Still Floundering

As with most government run programs that eventually run out of budgetary steam, the National Flood Insurance Program (NFIP) has been on life support for quite some time, and the funding for it is due to expire on September 30.  This comes as especially bad news in the wake of Hurricane Irene, which blew up the Eastern Seaboard causing billions of dollars in damage from North Carolina to Vermont.

Most lawmakers agree that the time for a long term solution has come and gone, with nothing more than a short term fix being a distinct possibility.

Of course the single biggest obstacle is the fact that flood damage is not covered by normal homeowners’ policies.  The only way to obtain flood insurance was through the government funded NFIP.  In a year of record breaking rainfall and flooding, that becomes a game changer.

The NFIP has actually been living on borrowed time since 2088, when Congress implemented a series of short term fixes designed to increase the program’s life span. The reason was politics as usual….Congress simply could not agree on the best course of action to take in order to revamp the program and make it solvent again.  The NFIP went almost $18 billion in the hole following 2005’s hurricane Katrina.

As of July, several changes had been approved by Congress, not the least of which was the allowance of a 20 percent annual increase in premiums.  Most lobbyists remain divided over how much of a rate increase there should be and what sort of intervals they should occur. 

The Senate authorized a 15 percent rate increase, as well as forgiveness on all of the program’s current debts.  This would of course, be in keeping with our current administration’s policies of bailing everybody out who needs it.

The current plan is to continue funding of the NFIP through 2016, with some form of gradual rate increases in place to cover some of the additional costs.  Subsidies will be phased out, flood maps will be updated and improved, and the public will be allowed to participate in the mapping process.

The legislation will also promote private insurer and reinsurer participation in the program. Two new additions to the coverage will include limits to policies based on inflation and higher deductibles for properties that receive financial assistance with rates.

Property owners in communities newly designated as a flood area will see the largest increase in the first year of coverage. They will be brought up to cost based pricing over the initial five year period. The first year they will see increases that bring their rates up to half of the actual risk indicator cost.

The following four years their increases will rise around 20 percent each year, until they are at their actual risk cost. Minimum deductibles will be set at one thousand dollars for properties that will be paying cost based rates, and two thousand for properties receiving financial assistance with rates.

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