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Big changes could raise flood insurance premiums for some

WASHINGTON – Jan. 16, 2008 – When Congress resumes this month, the National Flood Insurance Program’s (NFIP) renewal will be one of many issues to tackle. About 33 percent of all NFIP claims are related to homes in minimal-risk areas, and experts estimate during a 30-year mortgage, a home has a 26 percent chance of being damaged by a flood.

Flood risks are too risky for the private insurance market, which is why Congress created the NFIP in 1968, but these risks appear to be too much for the program, which currently has a $17.5 billion deficit. While it is likely lawmakers will forgive the NFIP’s debt, they are expected to reform the program to prevent further indebtedness before the program expires on Sept. 30.

The U.S. House Committee of Financial Services passed flood insurance related legislation last September and October, which would eliminate subsidies for vacation homes, second homes and commercial properties, and impose full-risk premiums on those properties suffering more than two flood losses and whose owners “refused reasonable offers of funding from the Federal Emergency Management Agency (FEMA).”

Additionally, the committee passed a bill requiring homeowners purchasing $600,000 or more homes after the bill becomes law to pay higher insurance rates, which would increase by 15 percent annually beginning in 2011, thus eliminating any subsidies for those homes.

Another provision would allow flood insurance policyholders to tack on wind coverage as well, which has become a contentious issue in Congress. The U.S. Senate’s version of the five-year NFIP reauthorization would increase premiums 25 percent annually, rather than 15 percent per year, and phase out subsidized rates for nonresidential properties and non-primary residences. However, the Senate bill does not allow for add-on wind or basement coverage

Source: Sarasota Herald-Tribune (FL) (01/13/08) Sichelman, Lew

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