On September 30, 2017, the National Flood Insurance Program (NFIP) will expire unless a bill to continue the program is passed through both the House and Senate.
The future viability of the much-maligned federal program is uncertain, as critics stress the ever increasing NFIP debt to the U.S. Treasury is not sustainable. The NFIP was created in response to the private sectors’ reluctance to underwrite the many complexities associated with insuring flood events. Unlike car and health insurance, flood claims are usually a result of a natural disaster, so numerous claims are filed at the same time. Due to this large intake and payment of claims contemporaneously, the NFIP has been unsuccessful in calculating the correct premiums. Premiums need to cover the smaller, average flood claims while also paying the massive claims associated with catastrophic natural disasters events.
When Congress created the program in 1968, it was to be self-funded. However, Congress granted the program the ability to borrow from the U.S. Treasury during periods of natural disasters when there is an increase in flood insurance claims. Due to the program’s inability to calculate appropriate premiums that reflect the risk and the extraordinary losses the program incurred following Hurricane Katrina and Superstorm Sandy, the program has, unfortunately, relied heavily upon its ability to borrow from the U.S. Treasury—to the tune of over $25 billion.
Many members of Congress oppose the program and have suggested eliminating the program in its entirety and allowing private insurers to be the sole market providers. Last month, U.S. Sen. Robert Menendez voiced his disapproval of the program. Menendez was correct when he stated “Sandy was a natural disaster, but the delays, the denials, the disputes they encountered throughout flood insurance claims process” was a “manmade disaster.” He has proposed legislation that reauthorizes a reformed program that is simple, more affordable, fair, efficient, and accountable to the American people—consumers and taxpayers alike.
The Senator’s proposal for reform includes extending the 60-day deadline to appeal a claim to FEMA while enforcing the 90-day deadline for FEMA to adjudicate the appeal. The reform also seeks to eliminate wasteful spending on outside attorney fees litigating complaints filed by homeowners, while extending the current on-year statute of limitations for homeowners to file a lawsuit challenging their flood claim determination. The proposal would eliminate any incentive to underestimate claims by imposing a penalty for underpayments and overpayments. The reform also proposes to grant policyholders the right to examine all evidence relied upon in the processing and determination of their claim, and mandating strict guidelines and standards for the training and continuing education of insurance agents and adjusters.
To make the NFIP more actuarially sound, some changes have already been implemented. On April 1, 2017, several changes took effect that included increased premiums based on updated rate maps and providing rating clarifications on properties newly mapped in the Special Flood Hazard Area.
The future of the NFIP is uncertain; what is certain: The NFIP is a broken program that has robbed from the very people it was created to protect. Hopefully, Congress can reform the program and truly make policyholders the priority.
