Whew! Flood insurance still available
Congress agreed on a short-term fix, and chances are good for a 5-year renewal of the National Flood Insurance Program. But it likely means higher premiums.
This post comes from Marilyn Lewis at MSN Money.
It was yet another punt by Congress: Elected officials in Washington, D.C., failed to pass a bill reforming the National Flood Insurance Program this week. However, they extended the program until Nov. 18, giving them time to close a deal that reportedly has support from both parties.
What it means: If you're buying a home -- or trying to insure one against flooding -- in one of 20,000 communities participating in the program, you'll be able to buy flood insurance, a requirement for some purchases.
The continuing resolution authorizing the short-term extension now goes to President Obama, who's expected to sign it, says HousingWire.
You can't usually get flood insurance as part of a homeowners insurance policy. Private companies say it's too expensive to provide.
The government program, run by FEMA through partnerships with private insurers, subsidizes premiums, making them affordable.
"The program was originally intended to pay for itself, but since Hurricane Katrina, it's been heavily in debt," writes Ezra Klein at The Washington Post. Payouts after the disastrous 2005 and 2008 hurricanes and floods left it $19 billion in the hole, says this article in Science magazine (.pdf file).
Begun in 1968 by Congress, the federally run program lets homeowners buy insurance in some 20,000 communities in the states and U.S. territories. Currently, 5.6 million policies are in force.
"Although federal assistance is still a vital part of disaster response and recovery, the NFIP saves the U.S. taxpayer millions of dollars each year," says this history of the program by the Kentucky Department of Environmental Protection.
Since 1978, the FEMA program has paid $38 billion in claims, 40% of them in Louisiana. The biggest single insurance event for the program was Hurricane Katrina, which cost it $16.2 billion in flood claims, according to an article at InsuranceQuotes.com. It also has a map showing payouts by state. Post continues after video.
The second-biggest state for claims is Texas, with $5.5 billion paid between 1978 and March of this year, the article says.
Other big users of the insurance are:
- Florida, $3.6 billion.
- Mississippi, $2.9 billion.
- New Jersey, $971 million.
- Alabama, $943 million.
- North Carolina, $797 million.
- Pennsylvania, $773 million.
- New York, $672 million.
- Missouri, $568 million.
Reform is needed. Even FEMA is pushing for reform, along with lobbyists from the real-estate, home construction and insurance industries.
But the program "has been caught in a legislative tug-of-war between lawmakers in the House and Senate that has caused three lapses in the program in as many years," says Bloomberg Businessweek.
Unable to agree, Congress gave the program 12 short-term extensions in three years and even let it lapse three times, the article says. It quotes Rep. Spencer Bachus, R-Ala.: "Having these short-term extensions is costing the economy, it's costing jobs and it's costing development."
When Congress couldn't agree in 2010 and let the program lapse, 47,000 home sales were delayed or canceled -- in the midst of the recession, Businessweek says.
Writes a risk expert at Chicago's Examiner.com:
The failure to revamp the program in part stemmed from the continued building of properties in high-risk areas. About 40% of claims are being paid to property owners (for properties) which are repeatedly flooded.
On the table now is a five-year extension of the program with significant changes. House and Senate versions are nearly in agreement, according to press reports.
Businessweek writes that the House version, authored by Rep. Judy Biggert, R-Ill., would:
- "Allow premiums to rise toward actuarially sound levels."
- "Link coverage limits to inflation and phase in coverage requirements for those who fall in newly designated flood zones."
- "Establish a new system for handling flood-plain mapping."
If you have flood insurance -- or need it -- get ready for higher premiums. It's too soon to know how much higher.
Today, premiums for a $250,000 home with a basement and the contents, in an area with low to moderate risk of flooding, cost as little as $405 a year, depending on the policy you choose, according to this chart at FloodSmart, the NFIP website.
Coastal high-risk areas are more expensive. The average high-risk policy runs $2,600 a year, says the article at InsuranceQuotes.com.
To get flood insurance, your community must participate in the program and have made maps that designate flood hazard areas.
Even if current reform plans find consensus in Congress by Nov. 18, Klein says the elephant in the room still isn't being addressed:
But the argument over spending and debt obscures a larger concern: Why are we subsidizing the building of homes in flood-prone areas?
A significant chunk of flood insurance is offered at federally subsidized rates in areas vulnerable to natural catastrophes.
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