The 2017 hurricane season was brutal.
Seventeen named storms struck the United States causing a record-setting $200 billion in damage. Much of this damage occurred not from high winds or storm surges, but from extended heavy rains that triggered major flooding.
As private insurers reacted swiftly to cover windstorm damages to homes and totaled cars, the National Flood Insurance Program (NFIP) was faced with thousands of claims and daunting payouts. For a program that already was $25 billion in debt, the added burden spotlighted just how precarious the future may be for the federally funded program.
How did the NFIP get to this point? Well, it wasn't from a few bad hurricane seasons.
Problem started in 1968
In reality, the problem started back in 1968 when the program was created because it never worked as originally intended.
"I think it's clear that [the NFIP] was a well-intentioned program that's now being held together by string and fraying duct tape," says Jason Wolf, manager of a property insurance litigation group in Florida. "I think it's good that we seem to be having conversations about the program on a national level."
The NFIP came about after the federal government realized private insurance companies were unable to provide flood insurance to homeowners at a reasonable cost. Lawmakers stepped in to subsidize the cost of coverage.
Special Flood Hazard Areas were mapped out to pinpoint flood-prone regions. It was assumed this would discourage people from continuing to live in these areas, but that never happened.
Not only did people continue to live there, but new residents were not deterred from building new homes in these susceptible areas.
Compounding that problem is when a house floods multiple times only to be rebuilt on the same spot, which means multiple insurance payouts for the same property over time.
Today, the NFIP insures about 5.5 million homes nationwide, and a certain percentage of them are known as repetitive loss properties — homes that are continually damaged by flooding and then repaired or rebuilt using federally subsidized insurance policies.
"The risks of living in a flood-prone region are not being accurately felt in the free market of people looking to buy or build homes in these areas," says Matthew Pinsker, a professor at Virginia Commonwealth University's Department of Homeland Security and Emergency Preparedness.
'There's no easy solution'
Several ideas have been floated to address the financial state of the NFIP. One suggestion is to continue coverage for current policyholders, but not issue new policies for those moving to or building in flood-prone areas.
However, that has been condemned by special interest groups, homebuilders and coastal constituents. And neither Congress nor the White House has made reforming the NFIP a top priority.
At the end of the day, Pinsker says, "there's no easy solution."
"A change is going to be painful and costly for some, but it's obvious that things simply can't continue the way they are."
Jason Hargraves is the managing editor of insuranceQuotes.com. He can be reached at jason.hargraves@allwebleads.com. The opinions expressed here are the writer's own.
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