Changes in the New Flood Insurance Program
The National Flood Insurance Program (NFIP) was started back in 1968. It has stayed around despite a whole host of problems with funds and other aspects. It was created so people would be insured for their losses in case of flooding. In addition to insuring homeowners against losses, it also worked with local and federal offices to help prevent flood damages. Flood zones were mapped and FEMA became overseer. It sustains itself, and borrows from the U.S. Treasury only when needed. After Hurricanes Katrina and Rita, the NFIP went into huge debt, $18 billion to be exact. This put the entire program in a shambles.
History of the NFIP
It took a lot for Congress to come to an agreement and get NFIP modernized. 2008 was the last time the NFIP was updated. It has been overhauled this year, only the 5th time modifications have been made. In 1973 special flood zone hazard areas (SFHA's) were required to buy flood insurance. The Coastal Barrier Resource Act went into effect in 1982, which made undeveloped coastal barriers uninsurable under the NFIP. Minimum development requirements in flood plain areas were encouraged to be exceeded with the National Flood Insurance Reform Act in 1994. Property loss reduction was the subject of the NFIP's 2004 amendment, made for areas that have flood damage frequently.
The Biggert-Waters Flood Insurance Reform Act was signed in July 2012, which extended the NFIP through 2017. This overhaul was done to input fiscal reforms that could set the NFIP right again and get it out of the red. New rules were put in place, and the extensions go retroactive 5 years to help policyholders that were left holding the bag when the NFIP expired in some areas. With this new act, subsidies for properties that constantly have flood losses are gone. It is also much simpler to apply for buyout under FEMA. With the phasing out of subsidies, the NFIP can reduce borrowing needs. FEMA can also purchase reinsurance, which makes them proactive rather than reactive. Annual premium increases were capped at 20%, and coverage is now available for multifamily properties. Other changes include minimum deductibles and modernized mapping of flood-prone zones. It turns out that Biloxi, MS was not mapped in the special hazard zones. This was fixed as well. Map updates are one of the most important aspects because everyone looks at them to determine if they are in flood hazard zones. Another aspect of the overhaul outlines repayment of debt from Hurricane Katrina. There are numerous other changes to the program affecting businesses and lenders.
Water vs. Wind
Another change in the NFIP calls for quicker and more accurate wind/water damage claims. This amendment, called the Consumer Option for an Alternative System to Allocate Losses (COASTAL) helps figure if the claim is classified as wind or water damage. This keeps wind claims out of NFIP. Some states are getting proactive as well, restricting development in flood areas. Vermont has done this and making its own maps, with greater accuracy.
In 1983, the NFIP instituted a Write Your Own (WYO) program. This helped policy distribution and gave private insurers experience in flood insurance. The number of private insurers is about 80 currently. It had its drawbacks, though. In 2008, some insurers dropped out when it looked like no changes were coming for NFIP. Private insurers, though, are turning profits since they can turn away business. With the changes to the NFIP, it could become entirely privatized, though not without much research and study. What matters is having flood insurance availability throughout the nation.