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The National Flood Insurance Program (NFIP) is due to expire September 30 unless it is reauthorized by Congress. The House of Representatives already passed an extension bill, the Flood Insurance Reform Act of 2011 (H.R. 1309), that would reauthorize the NFIP for five years rather than once again subjecting taxpayers, homeowners and companies to the fits and starts of the short-term extensions passed in recent years.
The bill does not only reauthorize the program; it also contains essential reforms to move the NFIP towards fiscal health. These include increasing annual premiums on a graduated scale for both residential and commercial structures, establishing new mapping standards to accurately reflect flood risks and devising methods to increase program participation.
Time is running out, however. Even with the bill's bipartisan support and hopeful Senate passage, lawmakers must hold a conference to reconcile the two bills. With the deadline looming, RIMS and others have been pushing for expeditious consideration.
While some may question whether the federal government should be involved in flood insurance in the first place, floods are a unique peril. Adverse selection and the concentration of catastrophic losses in an event combine to make the risk uninsurable for carriers. Simply put, the market has been unwilling to get involved in the flood insurance business. As a result, the federal government was forced to step in and create the program in 1968 to make flood insurance available and affordable.
The NFIP currently provides insurance to 5.6 million policyholders in more than 21,000 communities nationwide. By adopting the program's regulations and building codes, these communities have averted $16 billion in property loss since 2000, according to the Department of Homeland Security. On the commercial real estate side, an estimated $2.2 trillion in commercial real estate loans will be coming due over the next decade, and a very limited capacity to refinance the sales and leasing of commercial properties could hinder the nation's economic recovery.
For decades, the program has provided a vital backstop against a potentially catastrophic exposure faced by so many businesses and individuals across the country. A historic summer of flooding shows that it is needed as much today as it was 40 years ago. Now is the time to reach a consensus and ensure policyholders that they will still be financially protected when the waters rise.
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Kathy Doddridge is RIMS' director of government affairs.
Risk Management Magazine and Risk Management Monitor. Copyright 2012 Risk and Insurance Management Society, Inc. All rights reserved.
