Real Estate: Can We Save Flood Insurance?

Real Estate: Can We Save Flood Insurance?In the past few months more than 200,000 homes have been impacted by local floods. Two things make such flooding remarkable: First, we’re talking about a lot of real estate. Second, the number of homes impacted by flooding is huge and it will get larger.

As a result of Hurricane Matthew, North Carolina says that “estimates show hurricane-related flooding has impacted more than 100,000 structures valued at nearly $1.5 billion.” In Louisiana, The Times Picayune reported that this summer’s rains resulted in an estimated 109,000 requests for housing assistance.

The Louisiana floods have receded and with it most news coverage. The events in North Carolina have gotten little attention despite the fact that large numbers of people have been impacted.

National Flood Insurance Program Is Bankrupt

Meanwhile, in Washington, the National Flood Insurance Program (NFIP) is bankrupt. What other word can you use for a program that owes the Treasury $23 billion, money which no sane person expects to ever be repaid.

In fact, it’s argued that “the NFIP’s debt is paid for through premiums and fees collected from policyholders, not general tax dollars. The NFIP has levied increased fees on policyholders to help build back from catastrophic losses, which means it is the policyholders that are responsibly maintaining flood insurance coverage who are actually on the hook for the NFIP’s debt. In fact, nearly 65 percent of all NFIP premiums and policy fees are spent on losses and debt reduction, including interest payments.”

This is nonsense. If the NFIP’s debt was being paid by premiums there would be no debt. The obvious truth is that it’s politically impossible to raise flood insurance premiums and the money owed to the Treasury will never be repaid.

Don’t believe me? Check out H.R. 5953, the “National Flood Insurance Program Debt Forgiveness Act of 2016.”

Rep. Maxine Waters (D-CA), ranking member of the Committee on Financial Services and the bill’s sponsor, is “calling on Congress to forgive the NFIP’s debt so that as we work to reauthorize the program in 2017, we can start with a clean slate. Democrats and Republicans may disagree on many things, but I believe this is one area that we should all be able to agree on. The program’s current level of debt is entirely unsustainable, and if Congress does not address it, the future of the program is at risk, as are the policyholders that rely on the NFIP and the American taxpayers that fund disaster relief.

“The longer that Congress ignores this issue, the longer we will be stuck paying substantial interest on debt that will never be paid back, which in turn thwarts our ability to provide affordable flood insurance across the nation. As Congress continues to review the program ahead of its expiration in September 2017, I hope that common sense will prevail. Let’s forgive the NFIP’s debt and put our nation back on the path to affordability and resiliency.”

Wait a minute! Why should the debt be canceled if it will be repaid with premiums?

Here’s the point. If the debts racked up by the flood insurance program are written off it means people with nice seaside condos will be getting a $23 billion windfall. You can bet that a lot of people who don’t have nice seaside condos will be fairly upset by this proposed transfer of wealth. Alternatively, raise premiums enough and the value of waterfront property will tumble as potential new owners stay away from higher costs.

Two things need to be done. First, Congress has to work out a balanced flood insurance program, one that’s not a give-away. Second, the flood maps need to be expanded because climate change is real.

(Photo courtesy of Jasper van der Meij)

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