The first anniversary of Superstorm Sandy is this week. And much of the media during the past few days centered on the massive destruction that occurred, success stories in communities rebuilding quickly, and frustration around losses still being settled, especially where there was a question of what caused the damage, flooding or wind.
Separately, another flood-related news story made headlines as several members of Congress have submitted legislation to delay flood insurance rate increases set to start this year. These rate increases were implemented in a 2012 reauthorization of the National Flood Insurance Program by Congress as a means to get the program back into the black, as it is estimated that it is in debt of $28 billion as a result of claims paid out for Sandy as well as other big storms from the past several years.
The Issue With National Flood Insurance
Many people purchase flood insurance through the National Flood Insurance Program (NFIP), a federally run system that offers flood insurance to individuals and businesses. The program was set up decades ago as a result of very few private insurers willing to include flooding as a covered cause of loss because the likelihood of flooding, especially in coastal areas, and the inability of the insurance carriers to charge enough premium to pay claims and make a profit.
The NFIP program has helped many people protect themselves from a flood loss. However the program has never been able to pay for itself, often being in the red by billions of dollars, as the premiums charged were not enough to cover all the flood losses that have taken place. And as a result of this, the NFIP has often gone to Congress to bail it out.
What the 2012 Act Will Do
In the 2012 National Flood Insurance Program reauthorization bill, the plan was to allow rates to increase to try to stop this cycle of NFIP coming “hat in hand” to Congress every few years, and instead have the rates reflect the true risk of flooding to homes and businesses.
The problem with this solution is that the rates have gone up dramatically in some areas, and many policyholders are unable to pay these high premiums. In turn they have gone to their elected officials to complain, and ask for relief.
Why Delay Might Occur
Now these members of Congress, especially ones in areas such as New Jersey and other coastal states, are asking that NFIP premium increases be delayed by several years. And it looks as if there might be rare bi-partisan support to enact this delay. While that may win votes, it still leaves the fundamental problem that the NFIP program cannot pay for itself without charging higher premiums. And, if nothing is done to address this issue, then ultimately all U.S. taxpayers will continue to make up the difference.