National Flood Insurance Program | Wikipedia audio article


The National Flood Insurance Program (NFIP)
is a program created by the Congress of the United States in 1968 through the National
Flood Insurance Act of 1968 (P.L. 90-448). The program enables property owners in participating
communities to purchase insurance protection, administered by the government, against losses
from flooding, and requires flood insurance for all loans or lines of credit that are
secured by existing buildings, manufactured homes, or buildings under construction, that
are located in a community that participates in the NFIP. This NFIP is designed to provide an insurance
alternative to disaster assistance to meet the escalating costs of repairing damage to
buildings and their contents caused by floods. As of August 2017, the program insured about
5 million homes (down from about 5.5 million homes in April 2010), the majority of which
are in Texas and Florida. The cost of the insurance program was fully
covered by its premiums until the end of 2004, but has had to steadily borrow funds since
(primarily due to Hurricane Katrina and Hurricane Sandy), accumulating $25 billion of debt by
August 2017.==Implementation==
Participation in the NFIP is based on an agreement between local communities and the federal
government that states that if a community will adopt and enforce a floodplain management
ordinance to reduce future flood risks to new construction in Special Flood Hazard Areas
(SFHA), the federal government will make flood insurance available within the community as
a financial protection against flood losses. The SFHAs and other risk premium zones applicable
to each participating community are depicted on Flood Insurance Rate Maps (FIRMs). The Mitigation Division within the Federal
Emergency Management Agency manages the NFIP and oversees the floodplain management and
mapping components of the Program. The intent was to reduce future flood damage
through community floodplain management ordinances and provide protection for property owners
against potential losses through an insurance mechanism that requires a premium to be paid
for the protection. In 2003, the GAO found that repetitive-loss
properties cost the program about $200 million annually. Congress originally intended that operating
expenses and flood insurance claims be paid for through the premiums collected for flood
insurance policies. NFIP borrows from the U.S. Treasury for times
when losses are heavy, and these loans are paid back with interest. Between 1978 and year-end 2014, the U.S. federal
government has paid more than $51 billion in claims under the National Flood Insurance
Program.==Amendments==
The program was first amended by the Flood Disaster Protection Act of 1973, which made
the purchase of flood insurance mandatory for the protection of property within SFHAs. In 1982, the Act was amended by the Coastal
Barrier Resources Act (CBRA). The CBRA enacted a set of maps depicting the
John H. Chafee Coastal Barrier Resources System (CBRS) in which federal flood insurance is
unavailable for new or significantly improved structures. The National Flood Insurance Reform Act of
1994 codified the Community Rating System (an incentive program that encourages communities
to exceed the minimal federal requirements for development within floodplains) within
the NFIP. The program was further amended by the Flood
Insurance Reform Act of 2004, with the goal of reducing “losses to properties for which
repetitive flood insurance claim payments have been made.” The Biggert–Waters Flood Insurance Reform
Act of 2012 (Biggert-Waters) modified the NFIP. At the conclusion of 2011, as Congress passed
Biggert-Waters, the NFIP cumulative debt was over $17 billion. A core principle of Biggert-Waters was to
change the NFIP premiums to match actuarial risk-based premiums that better reflected
the expected losses and real risk of flooding. These changes included removing discounts
to many policies which were being sold below actual actuarial risk targets and eliminating
“grandfathering” of older rates.In January 2014, the United States Senate passed the
Homeowner Flood Insurance Affordability Act of 2014. This bill changed the process used to alter
subsidized premiums and reinstated grandfathering of lower rates; effectively delaying the increases
in flood insurance premiums to obtain risk-based premiums under Biggert-Waters and spreading
the cost of the lost premiums over all of the remaining policy holders.The National
Flood Insurance Program was $24 billion in debt at the beginning of 2014 as a result
of Hurricanes Katrina, Rita and Sandy. The passage of the HFIAA described above has
concerned insurance and environmental observers that the delay in implementation of actuarial
rates will leave taxpayers exposed to additional losses.==Floodplain Status Determination Appeals
and Changes=====
Letter of Map Amendment===Insufficient map topographic detail or accuracy
can result in the unwarranted determination of Special Flood Hazard Area (SFHA). An application for a Letter of Map Amendment
(LOMA) uses an Elevation Certificate (prepared by a Registered Land Surveyor or Registered
Professional Engineer) to ask FEMA to remove the flood insurance requirement on individual
properties.===Letter of Map Revision===
For multiple properties or a larger area, an application for a Letter of Map Revision
can be submitted when the landscape topography is different from that shown on the floodplain
boundary and/or flood heights shown on the FIRM and the Flood Insurance Study. A Letter of Map Revision based on Fill (LOMR-F)
is used when landscape topography is altered by humans, usually to increase the land elevation
and remove land from the floodplain. A Conditional Letter of Map Revision (CLOMR)
and Conditional Letter of Map Revision Based on Fill (CLOMR-F) are strongly advised as
a mechanism to obtain FEMA feedback on the project before site changes are made, especially
in light of the increasing attention on the nexus between the NFIP and the Endangered
Species Act.==Criticisms==
Before 1950 flood insurance was part of the standard homeowners’ insurance policy. During the 1950s increasingly high correlation
of losses by holders of flood policies of the same company caused many insurance companies
to begin excluding flood coverage from standard insurance policies, selling flood insurance
separately. Over time, insurance premiums collected were
insufficient in covering payouts after major flooding events. In 1968, the National Flood Insurance Act
established the National Flood Insurance Program (NFIP), which allows property owners to purchase
insurance from the U.S. government that covers certain losses from flooding. This insurance is not set by the market risk
valuation. It is less expensive than the private insurance
company rate would be. This is accomplished either by the program
running a deficit and borrowing money or by subsidies from the national government. Either way, the property owners with NFIP
policies are receiving government subsidies to live in areas with high flood risk. Property losses stemming from flood damage
were largely the responsibility of the property owner, although the consequences were sometimes
mitigated through provisions for disaster aid. Today, owners of property in flood plains
frequently receive disaster aid and payment for insured losses, which in many ways negates
the original intent of the NFIP. Consequently, these policy decisions have
escalated losses stemming from floods in recent years, both in terms of property and life.Moreover,
certain provisions within the NFIP increase the likelihood that flood-prone properties
will be occupied by the people least likely to be in a position to recover from flood
disasters, which further increases demand for aid. This is an example of adverse selection. Some factors contributing to increased demand
for aid are: Flood insurance for properties in flood prone
areas is mandatory only to secure loans, which makes it somewhat more likely that flood prone
properties will be owned by seniors who have paid off their mortgages, or investors who
have acquired the property for rental income. Flood insurance only covers losses for the
owner of the property, and claims are subject to caps, which further increases the likelihood
that the property will be occupied by renters rather than the property owner. Flood prone properties are more likely to
be offered for rent because of the owners’ increased risks and/or costs associated with
occupying the property themselves. Flood prone properties are more likely to
be offered for rent at a discount, which attracts lower income groups, seniors, and infirm groups.According
to critics of the program, the government’s subsidized insurance plan “encouraged building,
and rebuilding, in vulnerable coastal areas and floodplains.” Stephen Ellis, of the group Taxpayers for
Common Sense, points to “properties that flooded 17 or 18 times that were still covered under
the federal insurance program” without premiums going up.Another criticism is that FEMA doesn’t
administer all policies, instead outsourcing many policies to private insurance companies. When a disaster occurs, FEMA makes payments
to those private insurance companies to offset their costs. However, there is little oversight and few
rules as to how the money should be distributed. As a consequence, private insurers have been
known to use FEMA payments to hire attorneys that fight policyholders in court. One law firm is estimated to have received
US$29M from FEMA payments to fight Hurricane Sandy claims

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