The White House says the plan would strengthen the NFIP.
As Texas and Florida recover from two major hurricanes, President Donald Trump proposed that the federal government halt selling insurance on new homes built in flood-prone areas. The proposal was part of the White House’s Office of Management and Budget’s bid to shore up the National Flood Insurance Program (NFIP), which currently has $25 billion in debt.
Under the plan, the NFIP would continue to insure homes already standing in a 100-year flood zone, but discontinue providing policies to newly constructed properties in flood-prone areas after 2020. The Trump administration also recommended that frequently flooded homes be denied coverage from the NFIP.
Short Term Fix for NFIP
Prior to his announcement, President Trump signed a bill that extends the NFIP’s expiration date from September 30 to December 8, thereby giving Congress time to address the program’s massive debt. Lawmakers from both parties have already started discussions on possible reforms to the NFIP.
Meanwhile, insurance industry insiders expressed reservations about a short-term renewal. Both the National Association of Mutual Insurance Companies and the Independent Insurance Agents & Brokers of America urged Congress to develop a long-term solution to the NFIP. “It is more important than ever to come up with a longer lasting solution to the nation’s flood risk,” said Charles Symington, SVP of the Independent Insurance Agents & Brokers of America.
Some legislators have advocated increasing private sector participation in the flood insurance marketplace as a means to insure more homes while alleviating the burden on taxpayers. Allstate CEO Tom Wilson recently said that his company would sell flood insurance if the current “patchwork” of federal agencies and state-backed providers is overhauled and streamlined. He also said that adding more low-risk properties to the flood insurance program would strengthen the marketplace, as well.
Are Enough Homes Insured?
As debate over the NFIP continues, concerns continue to mount over whether enough homes are insured against flood damage. A report in the Daily Mail found that only 42% of the approximately 2.5 million homes in Florida’s 38 coastal counties are covered by flood insurance, which is about the same rate for all homes situated in the Sunshine State’s flood zones.
If the White House’s proposal is enacted, homeowners looking build in an area prone to flooding would be forced to purchase costly private flood insurance, which home builders associations fear would severely limit construction along desirable coastal regions.
Elizabeth Thompson, a spokeswoman for the National Association of Home Builders, told Bloomberg that new home construction along the Eastern Seaboard and the Gulf Coast would all but stop unless a viable private flood insurance market forms with legislative assistance. “It may take years for a private market to develop,” she said.
However, better risk models and a raise in the NFIP’s rates could attract more private insurers like Allstate to the flood insurance marketplace in the near future. As legislators focus on reforming the NFIP and insurers explore the marketplace, insurance agents must nevertheless ensure that their homeowner clients carry flood insurance if they reside in a high-risk zone.