Coastal Homeowners in Denial: FEMA urges homeowners to buy flood insurance

Congress is getting ready to send President Donald Trump the thirteenth 60-day extension of the National Flood Insurance Program (NFIP) as the current one expires at the end of September. The NFIP has been in serious financial trouble for years but Congress has been unable to agree on how to fix the ailing program. 

The NFIP is plagued by outdated maps, unrealistic premiums that don’t truly reflect the risk a property reflects as well as billions of dollars of debt due to rising claim rates. As climate change takes hold and increasingly powerful storms hit the coasts, the NFIP ends up paying out large claims that are not supported by realistic premiums. 

Some flood risk maps have not been updated for 40 years and fail to alert homeowners to the risks that their properties face as changing climate has increased the threat to floodplains. All of this has led to flood insurance premiums that do not reflect the actual risk to properties, David Maurstad, chief executive of the National Flood Insurance Program, said in a recent McClatchy article. 

NFIP Encourages Homeowners to Buy Flood Insurance

Maurstad is encouraging homeowners to consider purchasing flood insurance regardless of where their property falls on government flood maps. 

“We’ve been working to make sure people understand right now that not enough people have the flood insurance they need – not only after big events like Dorian,” Maurstad said in the McClatchy article.

“Too many people are in denial about their flood risk,” Maurstad continued in the article. “We need to continue to work hard to gain the trust of the American public, that the program is there to work for them.”

Program is in Trouble and Lawmakers Cannot Seem to Fix

The NFIP has been in trouble for a number of years and its debt is continuing to grow for a variety of reasons according to industry experts. One of the major reasons for the growing debt is the fact that premiums are no longer actuarially sound and are disconnected from growing flood risks. Hurricanes are becoming more frequent and are inflicting increasingly expensive damage on the cities they hit.

Despite the fact that hurricanes are happening more often and causing more damage, fewer people are actually buying flood insurance. In addition, the premiums being charged are not reflective of the actual risk these properties present. 

Unfortunately, Congress remains divided on how to fix the program. Representatives from at risk areas, particularly on the coasts would like to see premium increases capped while also allowing construction to continue in floodplain areas while representatives from low risk areas would like to see premiums increased so they no longer have to subsidize insurance for high-risk areas. 

It seems unlikely that Congress will be able to enact reform before the current extension expires at the end of the month. 

“Reauthorization of the program by Congress goes a long way,” Maurstad said in the article. “We continue to think that a multi-year reauthorization is what the program needs.”

Members of Congress are concerned about the program lapsing at the end of the month but cannot seem to come to an agreement on how to fix the program. Chuck Schumer and other members of Congress whose districts are on the coasts, this includes Republican Sens. Bill Cassidy of Louisiana and Marco Rubio of Florida as well as Democratic Sens. Elizabeth Warren of Massachusetts and Cory Booker of New Jersey would like to see a five-year reauthorization for the NFIP which would also cap premium increases at 9 percent.

A competing proposal, from a bipartisan group in the House would ask FEMA to increase premiums to actuarially sound levels, rates that are based on the actual risk presented by the location of the property. 

“The best way to understand the flood risk – a good signal, anyway – is what the insurance cost would be,” Maurstad said in the McClatchy article. “Really, the issue is that we’ve had a program in place for 50 years now, and it’s reasonable to think that we’re going to learn things over those 50 years,” Maurstad continued in the article. “Technology is going to change.”

What Happens Now?

More than likely, nothing will change in the near future. There is a very real possibility that Congress will simply renew the extension, kicking the can down the road yet again. 

According to the McClatchy article, Maurstad feels that short-term extensions are “disruptive” to the NFIP program as well as the insurance market and homeowners buying NFIP policies.