Flood Barrier USA

Will Congressional Gridlock Endanger Flood Insurance?

Author: Donna Conneely

The National Flood Insurance Program insures more than 5.5 million residences in flood-prone areas, the majority of which are located in the states of Florida and Texas. The program is based on a contract between the federal government and the flood-prone communities, in which the community agrees to put into place flood management and flood protection measures in order to minimize future flood risks. In return, the federal government provides flood insurance in high-risk areas where no other insurance is available. The idea is that the community will beef up its flood protection management to such an extent that future damages will eventually be greatly lessened in severity, saving money in the long run.

However, in recent years the program has run into major financial difficulties. During the aftermath of Hurricane Katrina, which occurred in 2005, the National Flood Insurance Program was inundated by claims. These claims were so overwhelming that a huge debt was created; a debt that is continuing to drag down the entire program. The debt currently surpasses $18 billion. No one denies that this crushing debt must be dealt with, but there is almost no agreement on just how it should be addressed.

The National Flood Insurance Program, which is overseen by FEMA, receives its funding from Congress. It is literally the only flood insurance option for residences in the US. Without this program, homeowners would not be able to get flood insurance in flood-prone areas, and therefore would not be able procure a mortgage. This would produce far-reaching consequences across the real estate, construction, and property development financial sectors.

Nevertheless, this vital program dangles in a funding limbo year after year, because of the huge, unsustainable debt from 2005. Each year the NFIP must wait for a crucial extension from Congress that will keep the program funded for a little while longer. Without this extension, no new policies may be written, which plays havoc with the housing market due to the uncertainty of the availability of the insurance. This year the NFIP funding was due to expire on December 16, 2011. However, in the nick of time Sen. David Vitter (R-LA) introduced a bill to extend the program through May 31, and this bill was passed.

A six-month extension is certainly better than no extension, but many voices are calling for an end to the uncertainty. In 2010, the authorization for the NFIP was allowed to expire four times for a total of 53 days without the program in place. Naturally, the ripple effect of these lapses did nothing to help the already struggling economies in areas that were still recovering from flood disasters. During the lapses, current policies remain in effect, but new ones may not be written.

Senator Vitter, representing the flood-prone state of Louisiana, has introduced new legislation that would support the NFIP for a period of five years, bringing more certainty and stabilization to the program. Another idea is to uncap the premium raise limit, which is currently capped at 10% per year. Of course, this would make flood insurance more expensive for consumers, but at least they would be able to get it. Both of these ideas would require bi-partisan support to be implemented. As the recent debt ceiling battle clearly demonstrated, the current Congress shows little inclination to work together, leaving the future of the National Flood Insurance Program in a state of continuing uncertainty.

This entry was posted on Monday, December 19th, 2011 at 11:11 am and is filed under Flood Protection. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.