Editorial: Fixing flood insurance program a good move - Spokesman ...

October 4, 2011 in Opinion

By The Spokesman-Review

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One positive may come out of this year?s unprecedented flooding: The National Flood Insurance Program may be renewed for a full five years after a series of short-term fixes that discouraged homebuilders and helped drive the largest insurer out of the?market.

More than 5.5 million homes and businesses worth $1.2 trillion are enrolled in NFIP. That includes more than 51,000 in Washington ? about 400 in Spokane County ? and almost 7,000 in Idaho. Annual premiums exceed $3.4?billion.

The Federal Emergency Management Agency administers the program, but the policies are sold by private?insurers.

Unfortunately, many property owners do not realize their policies do not insure against flood losses until it?s too late. Count thousands in the rain-ravaged Northeast among?them.

Losses inflicted by the hurricanes of recent years have left NFIP almost $18 billion in the hole. Taxpayers have been subsidizing the program for a long time, in many cases to the benefit of wealthy homeowners who rebuild destroyed homes along beaches or other vulnerable but valuable sites. According to the Property Casualty Insurers Association of America, owners in some areas pay premiums only one-third the level justified by the risks posed by the likelihood of high?water.

Since 1978, homeowners and businesses who chose to rebuild in dicey areas have filed $11 billion in claims, about 15 percent of the total for all?flooding.

Reforms that passed the U.S. House of Representatives by an overwhelming majority, and a companion bill headed for a vote in the Senate, will go a long way toward ending this ongoing financial?disaster.

The House bill will allow premium increases as high as 20 percent annually, up from 10 percent. The Senate limits the hikes to 15 percent. Eventually, the cost of these policies will reflect the risks, with rates potentially ranging from as little as $400 to almost $6,000 for a $250,000 home with $100,000 in?contents.

The bills, which have the support of the Obama administration, may also incorporate changes in the mapping of flood plains, which affects not only rates, but access to some mortgages.Eliminating the stopgap extensions of the past three years will also provide stability. Contractors who want to build on property exposed to flooding will know what the premiums will be. Insurers will be able to write policies without concerns the rules may change in a few?months.

There are some differences between the House and Senate bills, notably the fate of the $18 billion in NFIP debt. The Senate would forgive the sum; the House bill does not. To put that in perspective, the blowup over disaster assistance that almost shut down the government last month involved only one-third as much?money.

The federal government has been drenched in red ink because it backstopped mortgages sold by Fannie Mae and Freddie Mac. NFIP losses are niggling by comparison, but the proposed reforms would be a tiny signal lawmakers from both parties can get something?right.

To respond to this editorial online, go to?www.spokesman.com.

Source: http://www.spokesman.com/stories/2011/oct/04/editorial-fixing-flood-insurance-program-a-good/

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