As Tropical Storm Cindy threatened the Gulf and East Coasts recently, flood insurance was a major topic of conversation in the US House of Representatives. After years of trying to fix the problems with the National Flood Insurance Program (NFIP) that have been building for the past fifty years, Congress now faces the deadline of the current program expiring at the end of September. If legislative solutions are not found by then, there may be major disruptions in the housing markets and potential delays in settlements for those with claims pending.
Floods are the most common and most destructive natural disasters in the United States. Ninety percent of all natural disasters involve flooding. And most important: the damage from a flood is not covered under a standard homeowner's policy.
Even if you think that you are not impacted by this because your home in high and dry, as taxpayers we are all impacted. Since its inception in 1968, the NFIP has run up more than $24 billion in debt by paying out more for damages than was collected form premiums - and as taxpayers we are all responsible for this debt. With five million flood insurance policies in effect and $1 trillion in property insured, the prospect for additional taxpayer exposure is ominous. And while the NFIP has provided a "lifeline" for many families when they needed it most after devastating weather events, arguably it has also enabled the development of high-end beach front properties that carry extremely high risk. Without the built-in subsidies for these high risk properties in the program it is likely there would be significantly fewer of these expensive properties on the beach.
There are high risks in owning property that is prone to flooding whether in a flood plain or not. But one thing is for certain: the cost to cover the risk of floods is prohibitive and the historic practice of taxpayers subsidizing the cost for people to live in these areas prone to flooding cannot be sustained. There are very divergent views on how to solve the current dilemma for existing homeowners in a flood plain, and to create a sustainable program for others wishing to buy or build there. It is a very complex issue, supported by a very complex program that literally impacts millions of homeowners. (A previous new law that called for a phase out of subsidies beginning in 2014 caused havoc in the real estate markets most impacted by this change and was subsequently removed from the law.)
At Your AHA, we are watching these legislative developments closely to ensure that we meet our mission to protect and promote sustainable homeownership for all segments of America. We will also be looking for creative solutions such as a non-subsidized program that covers all homeowners for unexpected, catastrophic losses on their home - which would help reduce the risk in the current NFIP.
TMC - Chief Operating Officer