Home Insurance The expiring national flood-insurance program could be saved, but that alone won’t fix it

The expiring national flood-insurance program could be saved, but that alone won’t fix it

by Cedric Guzman

The National Flood Insurance Program (NFIP), a major federal program that provides flood insurance coverage to millions of properties, is set to expire this month. The program needs to be reauthorized by Congress by the end of September in order for home buyers to be able to close on their homes with new policies. Without this reauthorization, homeowners may have to turn to private insurers, potentially leading to significantly higher costs.

The NFIP currently covers about 4.7 million properties, but there are still 8 million properties across the US in flood-risk zones that either rely on private flood coverage or have no insurance at all. These properties are often located near river channels with a history of flooding or in areas prone to precipitation flooding. As climate change continues to fuel natural disasters, including wildfires and hurricanes, more homeowners are facing the risk of losing their homes.

The NFIP was created by Congress in 1968 due to a lack of private insurers offering flood insurance. Floods affect many homeowners at once, making it difficult for insurers to have enough funds to pay out in extreme circumstances. However, the NFIP has its own issues, such as setting premiums that reflect risk and accurately mapping flood risks.

Efforts have been made to reform the NFIP, including boosting funding to help the Federal Emergency Management Agency (FEMA) better identify and reduce flood risks and providing FEMA with more authority to sever ties with contractors that abuse the system. FEMA has also introduced a new methodology called “Risk Rating 2.0” to better assess the likelihood of a property flooding. However, this new methodology has faced resistance, with homeowners in certain areas seeing steep premium hikes.

Despite these reform efforts, NFIP premiums still fall below what private insurers would need to charge to be profitable. Experts argue that flood insurance should be more expensive and reflect more accurate pricing. As the risk of flooding increases, especially for coastal properties, relying on government assistance may not be sustainable in the long run.

In conclusion, the reauthorization of the National Flood Insurance Program is crucial for millions of homeowners who rely on it for coverage. However, the program itself has flaws that need to be addressed, including setting premiums that accurately reflect risk. As climate change worsens the frequency and severity of natural disasters, the need for effective and sustainable flood insurance coverage becomes more important than ever.

related posts