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Flood fix too little, too late?

By Jay MacDonald · Bankrate.com
Friday, November 1, 2013
Posted: 6 am ET

While our national attention was focused this week on the frustrating debut of the federal HealthCare.gov health insurance website, congressional representatives in low-lying, coast-hugging states were busy with their own high-stakes reclamation project to fix the fix to the National Flood Insurance Program, or NFIP.

Unfortunately, skeptics fear that this attempt at a legislative do-over could employ the favored go-to solution to problems on Capitol Hill these days and kick the can down the road a few years at the expense of coastal homeowners.

Some homeowners sandbagged

As you may recall, last year's bipartisan Biggert-Waters Flood Insurance Reform Act ushered in several long-overdue updates to the program, including allowing NFIP to purchase reinsurance just as real insurance companies do, to share the risk.

Unfortunately, the fix also threatens to unleash a mini-catastrophe on certain housing markets by removing decades-long flood insurance premium subsidies on older homes in high flood areas and bringing them into the 21st century on a schedule that can only be termed aggressive. The resets kicked in Oct. 1.

Rep. Maxine Waters, D-Calif., was among the first to recognize that the very reform she co-sponsored to stabilize the NFIP could also destabilize certain housing markets by increasing some flood insurance rates tenfold, essentially rendering some coastal homes unsellable.

After much collar-tugging by lawmakers, Waters, the ranking member of the House Financial Services Committee, introduced a bipartisan bill this week that she says will assure "changes are implemented affordably."

The do-over would delay rate increases on the most vulnerable properties by four years and require the Federal Emergency Management Agency, or FEMA, to conduct affordability studies and propose regulations that directly address affordability issues. The moratorium applies to primary residences that haven't claimed repetitive flood losses and are currently subsidized, as well as all properties that had either sold after July 6, 2012, or purchased a new flood policy after that date, thus triggering a full, rather than phased-in, premium hike.

Why a delay may not be enough

A moratorium on rate increases, although welcome, does little to address the worries of owners of older, modest homes miles away from the high-priced neighborhoods who may suddenly find themselves priced out of their home and/or unable to sell because of their flood insurance rates. That it won't happen now is a relief; that it may happen four years from now remains disconcerting, to say the least.

As Sen. Jeff Merkley, D-Ore., put it, "There are more families … worried about the cost of flood insurance than are worried about floods."

Here in Florida where I live, two insurers have come forth to offer private flood insurance to owners of vulnerable homes. There's even renewed talk in Tallahassee of starting up our own state-run flood insurance pool, in light of the fact that, over the years, Florida has paid in $4 in flood premiums for every $1 it has received through claims paid out by the NFIP.

What's your prediction? Will the NFIP re-do, if approved by Congress, be sufficient to avoid another mini housing crisis?

Follow me on Twitter: @omnisaurus.

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Jay MacDonald is a Bankrate contributing editor and co-author of "Future Millionaires' Guidebook," an e-book by Bankrate editors and reporters.

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1 Comment
DaGipper
November 01, 2013 at 1:27 pm

National flood insurance is so misunderstood that many insurance agents don't know how to sell it. When I bought it 15 years ago, I was asked a bunch of questions over the phone which I didn't understand but I answered them as best I could. When I had a flood the next year I was told my claim was denied because I had purchased the wrong insurance. I had purchased structure insurance and not contents and my carpet (the only thing damaged) was contents. The insurance I would have needed would have cost $800/year while my carpeting was $1,500 meaning that I would have to have a flood a year in order to make flood insurance a reasonable proposition. I had to sue the agent who sold me the wrong policy.

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