The Federal government’s National Flood Insurance Program held a lot of promise but in the recent past, things seem to have gone horribly wrong. Now the highly anticipated changes that were expected to address the growing Program deficit have been delayed. For agents serving customers inhabiting river towns, this is a crippling blow as they run out of explanations to justify the rate hikes. As coastal communities seek lower premiums and more plan benefits, agents are struggling to placate their customers, hoping that the government doesn’t delay this any further.
Understand the Problem
The National Flood Insurance Program suffers from a very fundamental flaw—something so basic and severe that it derails any chance of redemption! The debt of the flood program is so huge that just paying interest to the Treasury leaves it weak, almost empty. This makes it impossible to meet the current rehabilitation costs and payouts for future catastrophes. Even now, more than one million policyholders are affected.
Agents will find it more difficult to pacify policyholders as higher premiums will be charged in the near future. The issue is largely regulatory and beyond the realm of discounts passed on by agents. The rate subsidies have also dwindled in the past. Some of the highly volatile flood zones remain grossly under-covered despite the presence of the program, premium related apprehensions being the primary cause.
Changes for the Worst, 2012 Onwards
For agents, 2012 was the landmark year in the history of this insurance program. This is when the Federal Flood Insurance Program was buried under a severe debt of nearly $18 billion in the aftermath of Hurricane Katrina. The unexpected hikes in rate further eroded consumer interest. Policy agents were left helpless as subscribers continued to exit or were pushed out due to non-payments. Since then, the government has repeatedly tried to get the program up and running, but it keeps falling short on funding. The biggest problem lies in making this Program financially stable in the face of forthcoming natural disasters, high cost of making homes flood-proof, and rising reconstruction costs.
The other end of the problem lies in more taxpayers’ money being spent. To keep the premiums low, the government would need to introduce plenty of subsidies. This basically means billions of dollars of taxpayers’ money that will be routed to victims in case of a natural disaster. The government has repeatedly acknowledged the problem but still, a community friendly solution is nowhere in sight. At most, some stopgap measures have been incorporated like asking FEMA to execute a study on the affordability of flood insurance across the nation—this study was already overdue! We believe it must have been conducted many years ago when flood coverage products were retailed with little research.
Plausible Cures
Some industry experts have expressed optimism, believing that things aren’t as bad as they seem. They believe that the Congress can explore some options. Some agents believe that an annual limit should be placed on premiums. However, this still doesn’t guarantee saving the program from going bankrupt. Some agents believe that small, easily processed loans should be provided to coastal communities at basic rates. This will ensure that households can flood-proof their homes by raising properties above high waters.
A similar recommendation involves giving property owners some discounts on already high premiums every time they take upon a flood fighting renovation to protect their homes or businesses. Other recommendations include keeping the premium high only among earmarked high risk areas.
Concluding Notes on Current Issues
Recent surveys show that elevating homes isn’t very affordable. Agents serving coastal households support this opinion, emphasizing that the constructional challenges can lead to expenditure of up to $40,000! For agents, it has become increasingly difficult to sustain consumer confidence in this segment when the government seems so fickle.
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