Now that the National Flood Insurance Program (NFIP) has been extended through Nov. 30, 2018, Congress should pass a long-term reauthorization and reform measure that strengthens the program while providing certainty to property owners in 22,000 communities nationwide.
Administered by the Federal Emergency Management Agency (FEMA), the NFIP offers hundreds of thousands of dollars of insurance coverage for flooding, the most common and costly natural disaster in the U.S. The alternative is taxpayer-funded disaster relief, which averages $4,500 per household for eligible emergency repairs and temporary housing only.
The NFIP also averts billions of dollars in property damage each year because communities must adopt and enforce flood building codes and standards in order to join. Flood insurance is required for a federally related mortgage where there’s a one-in-four chance of flooding over 30 years (i.e., a 1 percent annual risk).
However, the NFIP must be reauthorized to provide flood insurance, and Congress has passed 42 stopgap extensions, including seven in the past year. Renewing the program a few months at a time fails to provide the long-term certainty property owners and communities rely upon for protection.
The program was also not designed to cover catastrophic loss years, including 2005 (Katrina), 2008 (Ike), 2012 (Sandy), 2016 (Matthew) and 2017 (Harvey, Irma, Maria). As a result, the NFIP has borrowed $36 billion from the U.S. Treasury, including $16 billion forgiven last year. Terminating this program will not wipe away the remaining debt, so a major focus of reauthorization will involve pushing as much risk to the private market as possible.
When the NFIP was created, the private market was not willing to write first-dollar coverage in high-risk flood zones. Now, there are a number of private companies offering better coverage at a lower cost than the NFIP that homeowners should be able to use; however, these companies are more selective and could adjust rates and coverage for some properties after major floods. Under current law, if a homeowner wants to switch from a private flood policy back to an NFIP policy, the property would be ineligible for a grandfathered NFIP rate. As a result, homeowners are fearful of leaving the program until there’s assurance that NFIP rate increases are gradual and phased in over many years.
With the threat of a lapse now past, NAR calls on Congress to come together and find common ground on much-needed reforms to the NFIP, including strengthening its viability and removing obstacles to a more robust private market for flood insurance. A long-term reauthorization that includes reforms will provide certainty to property owners and communities across the U.S.
Austin Perez is senior policy representative, Federal Policy and Industry Relations, for the National Association of REALTORS®. For more information, please visit www.nar.realtor/national-flood-insurance-program.
This column is brought to you by the NAR Real Estate Services group.
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