Flood Insurance Program Extended for Five Years

We can look forward to a federal program with higher insurance rates and a larger emphasis on private sector participation in providing flood insurance.

President Obama signed into law on June 30 the Flood Insurance Reform and Modernization Act of 2012. Many of us in the insurance industry had been lobbying Washington DC to give us the much-needed reforms and permanency for our flood insurance markets.

Since 2008, the US Congress has let the National Flood Insurance Program (NFIP) expire 17 times and some of those expirations have impaired a wide variety of real estate transactions. With the passage of this new reform law the NFIP will remain in place for five years without any interruption.

There will be several changes to the flood insurance program; mostly provisions that will make the flood insurance program self-sustaining without the need for an infusion of money to keep the program afloat. Certain properties that are too close to tidal waters will see a phase-out of subsidies. The flood insurance program in the past had maximum annual increases of 10% these will now be increased to 20%.

Other noteworthy provisions of the new law:

  • Requires the NFIP Administrator to develop a plan for repaying the debt incurred from Hurricane Katrina
  • Mandates that rates for secondary homes, properties with repetitive flood claims and commercial properties will go up 20% over the next five years.
  • Policyholders will be allowed to pay in installments instead of one lump sum.

Many of the details of the law will be subject to regulatory interpretation and implementation over the next 2 to 3 years in a serious effort to make the federal program self-sustaining.

What we as consumers can look forward to is a federal program that will have insurance rates much higher than what we have seen in the past and a larger emphasis on encouraging greater private sector participation in providing flood insurance coverage.

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OCTeaParty August 06, 2012 at 09:55 PM
How about a little personal responsibility? You bought in a flood zone, you accept the risk. Why does the government need to get involved?
Rich Hauswirth, CIC August 07, 2012 at 01:43 PM
OCTeaParty: Back in the 1960's the frequency and severity of flooding forced the insurance carriers to discontinue writing flood insurance. The government stepped in to create a market, and it worked very well for years. Financially the program was self-sustaining. In the early 1990's we began seeing more frequent storms of greater severity and increased damage to property. By 2005 Katrina’s damage had placed the flood program in serious debt. Revisions to the program were necessary and solutions to the Katrina incurred debt had to be dealt with. This new law will address these issues. Hopefully the law will also encourage private insurance companies to come back into the market.
ted.dobracki August 07, 2012 at 04:41 PM
I have no problem with this as long as the rates reflect the true hazards. The advantage of this law is that it spreads the risks nationally, as compared to within state boundaries when a single disaster would likely bankrupt insurance companies that cover only a small region. One weakness in the past was the subsidization of coastal regions at the expense of interior regions, which also often need flood insurance. But as long as risks are weighed and rates adjusted properly, that will be an improvement. Now that there is more history to evaluate risks, those rates should be adjusted, and the exisiting deficit can and should be made up by those who choose to get the insurance in the future, without cost to the taxpayers.


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