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What Should Be Done About Flood Insurance?

In August, during the wake of hurricane Harvey, we wrote a blog post about flood insurance and what you need to know about it. Since then, two more major hurricanes have hit the United States, Irma hitting the U.S territories and Florida, and Maria devastating Puerto Rico. With so much damage caused by flooding because of these storms, people are beginning to wonder how effective the National Flood Insurance Program, NFIP, really is. It has only survived through massive subsidies from the U.S Treasury and premiums in high-risk areas are getting harder and harder for average consumers to afford.

A conversation has begun, or is being continued, that debates how the program should be run moving forward. Many people are starting to think that the current solution, pay out claims so that affected residents can rebuild, may not be the best option. Many properties have made claims numerous times, forcing the program to pay out far more than it is receiving in premiums. Storms have been getting more frequent and more powerful since the program was developed in 1968 yet they continue to pay for families and businesses to rebuild in areas that are at a higher risk of flood now than they were when it was established.

The question now is, how should we move forward regarding flood insurance? Should we raise premiums and discourage building in areas where flooding is a risk? Should we take a deeper look at the flood plain maps and plan better for the future? Should we allow the private market to take over flood insurance so that tax dollars are not being spent on properties that are built, time and time again, in high risk areas? There are many options to consider but one thing is clear, the current system isn’t working.

Is it fair to force those in high risk of flooding to relocate to areas that aren’t as susceptible to flood damage? This could be argued for a very long time because both sides make good points. Those opposed to relocation are connected to their properties and communities that some have called home for generations. Those opposed to rebuilding can argue that tax dollars of the many shouldn’t be helping those that are choosing to build and/ or rebuild in locations that continue to be battered by storms that cause flooding.

Raising premiums is another option. This might help offset the amount of tax dollars that are needed to keep the program alive but is also taking money away from other areas that also need help, education, law enforcement, disadvantaged citizens and healthcare. Many people already claim that premiums are unaffordable and to substantially lower the amount of tax dollars needed, premiums would have to go up considerably. President Obama tried raising the premiums in 2012 but when faced with backlash from homeowners and their representatives congressed passed a law that capped premium increases.

The next solution on the table would be to allow private insurers to offer flood insurance and compete with the NFIP. This would allow insurance companies to do what they do best, develop rates based on extensive research. They would also be able to spread their share of the risk throughout many states where flood risk varies from very low to very high which would, in theory, lower premiums. Privatization of flood insurance, just like every other option, has its pros and cons and is definitely a conversation worth having and having sooner rather than later, natural disasters aren’t predictable or preventable in most cases. The longer we wait, the worse the situation becomes.

We’d like to hear from you. What do you think should be done about the future, or non-future, of the NFIP? Too often major decisions about policy that affect millions of people, are made by a small group of people who don’t always have our best interests in mind. Comment below with your opinion to get a conversation started. We’ve written letters to our representatives before in an effort to help our customers receive fair and honest treatment from insurance companies, better access to adequate and affordable coverage and to improve insurance laws and regulations so that they don’t solely benefit the insurance companies but consumers as well. We believe in using every available tool when it comes to helping our clients and communities through the insurance process, so let us know what you think!