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What happens if the National Flood Insurance Program punishes your community?

West Pittston – a northern Pennsylvania town of about 5,000 residents – is bordered by the Susquehanna River. After the region flooded 40 years ago, residents were offered a choice to build a levee or to leave the town unprotected to maintain the picturesque river views.

At the time, the consensus of both town residents and government officials was to keep the views, although most neighboring towns elected to build levees.

In 2011, the decision cost West Pittston dearly. Following Tropical Storm Lee, many houses were flooded up to second-story heights, according to The New York Times. Many residents lost all of their possessions.

Now, the residents of West Pittston may lose something else: their flood insurance.

fema-floodThe Federal Emergency Management Agency (FEMA) recently announced that unless West Pittston made significant improvements to its flood management program by Dec. 1, the town would be put on probation with the National Flood Insurance Program (NFIP). If FEMA determines that the town hasn't made enough headway by the end of the probationary period, the town could be suspended from the national program, forcing residents to seek high-priced, hard-to-get private insurance.

If you live in a flood-prone area, could you lose your national flood insurance, too? Here’s what you should know.

How the National Flood Insurance Program works

NFIP was developed in 1968 to provide subsidized flood insurance for people who live in high-risk flood areas, where private insurance is not available or is quite expensive. Standard home insurance policies don't cover flood damage. The federal program is administered by FEMA in partnership with more than 90 private insurance companies. Rates do not vary from company to company, but are based on a set of risk factors for your property.

Community participation in the program is voluntary, says Nicole Lick, senior mitigation planning specialist at FEMA. By participating in the program, they can gain access to more affordable flood insurance than they’d find on the private market, as well as access to disaster relief funds in case of major flooding.

In exchange for those benefits, the community agrees to comply with NFIP’s minimum standards for floodplain management related to building codes and other factors.

Although optional, communities are encouraged to participate in the Community Rating System incentive program. Under this program, residents of these communities receive discounted insurance premiums based on action taken to prevent flood damage.

“There’s a broad menu of different options,” Lick says. “Communities can do everything from putting higher regulatory standards into their building codes to sending floodplain administrators to trainings, or having flood preparation pamphlets available in their local library.”

Communities that participate in the program are rated on their efforts, and can receive premium reductions of 5 percent to 45 percent, Lick says. Now, about two-thirds of NFIP-insured communities participate in the discount program.

Going on probation

If a community fails to live up to the NFIP’s minimum standards, however, it may risk being suspended from the program.

In West Pittston’s case, FEMA identified numerous deficiencies with the town’s flood management plans. In many cases, government authorities had neglected to issue floodplain building permits for properties being built in the town’s “special flood zone” areas, which are highly susceptible to flooding, Lick says. Additionally, the town had almost 20 “substantially damaged” structures, which had not been renovated to meet modern code to comply with NFIP guidelines.

These shortcomings likely came to light because of the Tropical Storm Lee flooding.

“When a community fails to enforce restrictions, FEMA doesn’t usually do inspection,” says Rita Hollada, a flood insurance broker in Delaware. “Usually, FEMA gets involved when there have been flooding losses and asks, ‘Why did this flooding happen?’”

West Pittston has until Dec. 1, 2012, to comply with the NFIP guidelines. If that doesn’t happen, the community will go on probation, and both new and renewing policyholders must pay a $50 annual surcharge. If the community fails to make progress after that point, the town may be yanked from the flood insurance program.

Officials in West Pittston couldn't be reached for comment.

What suspension means

“Getting suspended from the NFIP is worse than never joining the program at all,” Hollada says.

When a community is suspended, not only is it ineligible for the National Flood Insurance Program, but it also may be ineligible for any federal disaster relief funds following a flood-related natural catastrophe.

Other than NFIP, homeowners often don't have an affordable option for protecting their properties against flooding. Richard Sobota, a FEMA insurance specialist, says that specialty private insurers such as Lloyd’s of London may insure such homes; however, homeowners may not be able to pay the price. According to Hollada, Lloyd’s generally has a minimum premium of $3,500 per year.

Being suspended from the NFIP also can ding home values, Hollada says. “It makes it very difficult for people to sell those properties," she says. "People find out what flood insurance will cost without the NFIP and back away.”

Program suspensions do happen, Lick says. In Louisiana, for instance, 23 townships were suspended from NFIP in 2010 for non-compliance.

However, after being suspended, most communities take immediate action to regain their NFIP standing, Hollada says. As of 2012, just one Louisiana town is on suspension. “Most of the time they get their problems solved,” Hollada says. Suspended communities always are eligible for reinstatement once they've proven NFIP’s issues have been resolved.

In some cases, residents may not even be aware of their town’s NFIP status. To find out whether you’re at risk of losing your flood insurance, look up your town in the NFIP’s Community Status Book. If there’s a problem, urge your local government to fix it before your community is suspended.

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