Despite floods of near biblical proportions, the U.S. Senate will likely turn the page on 2017 without correcting the errors they inserted into the Biggert-Waters Flood Insurance Reform Act of 2012 and without taking any action on flood insurance reform at all. This is particularly disturbing in a year in which the Federal Emergency Management Agency felt the financial sting of not just one natural disaster, but three monstrous back-to-back hurricanes pounding the Southeast and the Caribbean while a number of wildfires left hundreds of thousands of acres in the West burned to the ground.
Congress passed only a series of temporary extensions of the National Flood Insurance Program (NFIP) monopoly, the private flood insurance market remains alive and growing – hoping for a technical correction to previous legislation that will remove the threat of insurance regulation by federal lending regulators.
Related: Does federal flood data underestimate risk?
|The year in flood
With the 2017 hurricane season ranked as one of the top 10 for the U.S. by scientists at Colorado State University, most observers thought action on correcting flawed language relative to private flood insurance, as well as improving the NFIP would have been a slam-dunk for this Congress, but no such luck. The House of Representatives has made meaningful efforts in this regard only to be inexplicably rebuffed by the Senate.
This year, Hurricanes Harvey, Irma and Maria combined are projected to cost the NFIP around $14 billion, according to a recently published investigative piece by the Houston Chronicle. The NFIP was unable to fulfill its obligation to Hurricane Katrina claimants without borrowing from taxpayers. A portion of that debt — $16 billion — was forgiven by Congress this fall when it passed a $36.5 billion aid package. Including this forgiven debt and the losses caused by Hurricanes Harvey, Irma and Maria, the NFIP will have cost taxpayers at least $42 billion over a few years.
In September, the House passed the Flood Insurance Market Parity and Modernization Act introduced by Rep. Dennis Ross (R-Fla.) and Rep. Kathy Castor (D-Fla.). The measure clarifies language in Biggert-Waters threatening private flood insurers. This is a bill the House has passed on three separate occasions, but the Senate refuses to approve.
In November, the House passed legislation introduced by Rep. Sean Duffy (R-Wis.) to phase out the grandfathering of rates, to raise rates on repetitive loss properties and to slow building in flood plains. The Senate seems unlikely to act on it.
The reauthorization of the NFIP is now tied to the continued funding of the federal government due to expire on Dec. 22. The most likely outcome is for the flood program, along with the funding of the federal government, to be extended to mid-January 2018.
Related: FEMA to recover $1.042 billion in reinsurance from private markets
|The year ahead
Looking ahead, severe hurricanes will probably be seen again in 2018. A La Niña weather pattern is forecast that could bring more storms, according to the New Scientist.
If Congress fails to extend or temporarily reauthorize the NFIP by the current or any future deadline, the NFIP's ability to insure new properties will be suspended. Private insurers will be the only option to facilitate the closing of loans on homes or business that require flood insurance.
It appears that the Senate is unlikely to act until there is a crisis that will force its hand. The issues surrounding flood insurance are unique in that they follow geographic lines, rather than party lines. Lawmakers and constituents, both coastal and inland want to see change; those senators who want to continue taxpayer-funded subsidies seem to be afraid NFIP rates will increase.
Whether the Senate joins the House in correcting current inequities or not, private flood insurance, even with the recent storms, will remain a key part of the market. Rates may go up a little, as they probably should after the recent storms, but private market rate increases will be based on more accurate risk assessments than those taken by the NFIP monopoly and serve to continue the movement of flood risk to the private market. The private market will look at its losses from the past year and determine how it can move ahead in a way that continues to be attractive to consumers without falling into financial ruin like the NFIP.
Craig Poulton is chief executive officer of Salt Lake City-based Poulton Associates, which administers the country's largest private flood insurance program, the Natural Catastrophe Insurance Program at CATcoverage.com.
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