Debt debate may endanger National Flood Insurance Program
The clock is ticking for the National Flood Insurance Program.
There is growing concern that the federal debt debate, which has sucked lawmakers into political warfare about federal spending, could spell trouble for the flood insurance program. The program is set to expire Sept. 30. Congress must periodically renew the program, which has more than 5.6 million policyholders.
The National Flood Insurance Program provides home, renter’s and business flood insurance in more than 21,000 communities nationwide.
Program being ‘kicked like a can’
With the bigger threat of the debt crisis, the flood insurance program is getting “kicked like a can down the street,” says Marguerite Tortorello, a spokeswoman for the Property Casualty Insurers Association of America, which lobbies for insurance interests.
Earlier this year, the U.S. House overwhelmingly passed a five-year extension of the flood insurance program, with broad support from Republicans and Democrats.
Now, the U.S. Senate Banking Committee is finalizing its own flood insurance bill, although it has been “delayed for at least a week and could be pushed back until early September,” according to PropertyCasualty360.com. Congress is scheduled to take a break from Aug. 8 to Sept. 5.
A Senate Banking Committee staff member who declined to be identified says the committee is working on passing an interim extension (two months to one year) before the flood insurance program is set to expire Sept. 30.
‘Too big to fail’
Terry Tyson, president of Flood Smart Insurance, says that after 30 years of selling flood insurance, he thinks the flood insurance program has become “too big to fail.” The program is important because any mortgaged home in a flood-prone area is required by federal law to carry flood insurance.
“The flood program is so interwoven with the mortgage world, I couldn’t imagine what it would be like if they shut the program down,” Tyson says.
Tortorello, the Property Casualty Insurers Association spokeswoman, says expiration of the program would trigger insurance companies to start mailing coverage termination notices and could derail closings of home sales.
Without the National Flood Insurance Program, homeowners can’t get flood insurance and although private companies could pick up the low-risk policies, “the risky ones would become almost unaffordable,” Tyson says.
Tyson’s advice for homeowners, renters and business owners who have flood insurance: Don’t worry. “Steady as she goes; it will get back on the books,” Tyson says. “Just wait it out.”
An expiration of the flood insurance program is not unprecedented. Last year, the program expired for a total of 53 days. When it finally was reauthorized, the coverage was applied retroactively to those 53 days.
Program swimming in debt
The National Flood Insurance Program was created in response to the rising cost of disaster relief for flood victims; it’s managed by Federal Emergency Management Agency (FEMA). Through the program, private insurance companies write and handle federally backed flood insurance policies under their own brand names. No matter which carrier issues the flood insurance policy, the coverage, rates and general conditions are the same.
The program, subsidized by federal loans, is nearly $18 billion in debt.
The average flood policy cost about $600 in 2010, but the average total claim paid over the past five years was nearly $34,000, according to federal data.
A home in the flood insurance program can be insured for up to $250,000 and its contents for up to $100,000, according to FEMA figures from 2010. Renters can cover belongings up to $100,000. Commercial property owners can insure a building for up to $500,000 and its contents for up to $500,000.
Officials at FEMA declined to comment on the pending expiration of the flood insurance program and forwarded interview requests to congressional leaders. Congressional leaders also couldn’t be reached for comment.