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A Flood Insurance Extension — Now What?

Posted By Administration, Tuesday, August 7, 2018

PIA National is pleased the U.S. Senate passed a four-month extension of the National Flood Insurance Program (NFIP). It is extended to November 30th. The House passed the same measure last week.

President Trump signed the extension into law. PIA National Vice President of Government Relations Jon Gentile said by doing so helped Congress avert a lapse of the NFIP by a matter of hours.

“The passage of a clean extension by the House and Senate is positive. That said, waiting until the last minute to act should be a thing of the past. Congress now has four months to work to find a way to provide a long-term reauthorization of the program. That work should begin today,” he said.

An extension is one thing. Fixing the NFIP permanently is quite another. The program remains about $25 billion in debt. Critics say the program is not sustainable and radical reforms need to come about and come about soon. PIA National agrees with some of that criticism and wants reforms that include the expansion of more private insurers into the market.

Those same critics also point out that five-million or so properties are insured by the NFIP and those insureds often pay premiums that are way below market value. The Congressional Budget Office (CBO) says 85% of the policyholders in the highest risk areas are in that category.

Howard Kunreuther, the co-director of the Wharton Risk Management and Decision Process Center said, “No question about it, this is a new era of catastrophe. Some of it has to do with climate change, some of it has to do with people moving into hazard prone areas and thinking they're safe. 

Another report done in 2017 by the National Resources Defense Council (NRDC) found over 30,000 of them are considered severe repetitive loss properties. That means they’ve had four or more separate claims totaling $5,000 or more. Some have had two or more claim payments that exceeded the value of the property.

The NRDC says repetitive loss properties account for just 6% of the properties insured by the NFIP. They account — though — for 9.6% of the payouts. From 1978 to 2015 that was $5.5 billion.

That same report also shows 75% of those classified as moderate value — that’s less than $250,000 — have few options when it comes to what is now being called flood, build, repeat. They’re trapped into high risk properties and have no escape.

Attempts at reform in 2012 included rate increases but with some rates doubling and tripling the reforms were quickly — themselves — reformed. That led to rules that say rate hikes are limited to a maximum of 18% in a year.

Kunreuther said another problem is people not understanding the danger of flooding. Part of it is how the system is explained to them. “Don't tell a person that there's a 1-in-100 chance of a flood next year, they'll say, ‘I'm not going to worry, it's so small.’ Tell them that over 25 years, even without climate change, that probability is greater than 1-in-5, and then they pay attention,” he said.

Some say part of the reforms Congress needs to take is to help property owners in high-risk flood zones by buying them out. Others think mitigation like vouchers, loans or lowering flood insurance premiums could help. Mitigation means adopting building codes and help owners beef up homes to survive harsh weather.

The National Institute of Building Sciences says for every $1 spent on mitigation, $6 is saved for future disasters.

Those are some ideas. Others have other ideas. But what it really comes down to is communities in the future having to make hard decisions on where things are built and what the NFIP is going to be willing to insure for affordable prices.

Chris Hackett is the senior director of personal lines policy at the Property Casualty Insurers Association of America (PCI). He said, “Any time you see a major flood or devastating event, a lot of times you may see politicians come in and say, ‘We're going to rebuild.’That may be very popular at the time, but I think it's important to maybe take a moment and think about, is it really the best use of resources to rebuild in this exact location after this disaster struck?"

Source link: PIA National, U.S. News and World Report

Tags:  flood insurance  Insurance Content  Insurance Industry  Weekly Industry News 

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