National Flood Insurance Program; extension and reform

by Dan Krell © 2010

On September 30th, the National Flood Insurance Program was extended for one year, as President Obama signed S.3814; the “National Flood Insurance Program Re-extension Act of 2010”. The one year extension is the longest over the last two years, when the program has been extended for multiple brief periods. Delays in program funding have mostly been due to debates over the program’s financial status

After hurricane Betsy ravaged the gulf coast in 1965, Congress realized that there was a need for affordable, widely available flood insurance. Since 1968, the National Flood Insurance Program (NFIP) has been offering insurance coverage for home owners, renters and businesses. The NFIP offers coverage for floods that are associated with hurricanes, tropical storms and heavy rains, which is often not included in a standard home owner’s insurance policy.

Although not every home owner chooses to purchase flood insurance, mortgage lenders will require home owners to be covered if their home is located in a flood plain. Insurance experts recommend all home owners to be prepared by assessing risk and consider purchasing flood insurance; affordable coverage can help reduce the heartache and financial loss in the event of a flood.

Unfortunately, many area home owners wouldn’t think twice about flood insurance because flooding is not often seen as a threat. However, some home owners will often seek to purchase coverage when it is too late – when a weather emergency is imminent. For many Rockville residents, memories are still fresh of evacuations due the danger of Lake Needwood’s Dam breaking.

Without the NFIP, many home owners who live in flood plains would be exposed to additional risk while home purchases in those areas would be significantly curtailed. The debate over the beleaguered program’s financial viability is at the heart of the reform debate. The NFIP has been financially stressed since the hurricane season of 2005. The last reform of the NFIP was undertaken in 2006 at the heels of Hurricane Katrina and Rita’s devastation of the Gulf Coast, when NFIP combined claims from Katrina and Rita exceeded the total NFIP claims prior to those hurricanes.

Industry groups such as the National Association of Realtors (NAR) and the Property Casualty Insurers Association of America (PCIAA) have been calling for reforms to the NFIP. While both the NAR and the PCIAA are calling for increased coverage (to increase home owner involvement and contribution to the program), the PCIAA is also calling for modern flood maps, subsidy phase outs, sensible rates, among other program modifications.

FEMA, the federal agency that administers the NFIP, has been undergoing a three phase plan to reform the program. To involve concerned groups such as NAR and PCIAA, FEMA announced public meetings to be held on December 2nd in Washington, DC and December 9th in Denver, CO. The meetings will provide an opportunity for interested parties to hear reform policy and updates, as well as ask questions and offer feedback.

Since its inception, the NFIP has not only provided home owners and businesses with an alternative to disaster relief; it has also engaged communities across the country (including many local communities, towns, and cities) in flood plain management and flood awareness and preparation. You can visit smartflood.gov for more information about your flood risk and preparation recommendations.

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 15, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.