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Flood Insurance: Drowning in Reality

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jeremy caton

on 24 April 2014

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Transcript of Flood Insurance: Drowning in Reality

Flood Insurance: Drowning in Reality
H.R. 3370: Homeowner Flood Insurance Affordability Act of 2013
Softening the blow of premium hikes set by BW-12
Current State of Affairs
Flood Insurance Overview
Risk
Insurance
Federal
What is the NFIP?
Why do we need it?
Timeline
Determined for the National Flood Insurance Program by the Federal Emergency Management Agency
statistical data for river flow
storm tides
rainfall
topographic surveys
NFIP Uses Flood Insurance Rate Maps (FIRMs) to determine risk and premiums
FIRMS can change, and have recently changed, affecting millions by altering their flood risk
http://www.floodtools.com/
Determining Risk
High Risk Areas
Defined:
"In high-risk areas, there is at least a 1 in 4 chance of flooding during a 30-year mortgage"
FloodSmart.gov
Required by law to have flood insurance if lender is insured or regulated by federal government
70%-75% of flood insurance claims come from designated high risk areas
Moderate and Low Risk Areas
Defined:
Non-Special Flood Area (NSFA): Lower but not eliminated risk of flooding
FloodSmart.gov
Not required by law to have flood insurance, however, strongly encouraged to do so
25%-30% of flood insurance claims come from designated NSFA areas, and 33% of disaster assistance (ie: home repair grants, low interest gov't loans, etc)
Flood Map Zones: A and V
Feasibility Issues:
Small Number Affected Areas
Too few high risk markets compared to nationwide coverages
Large Losses = Huge Payouts
Losses due to catastrophic events such as flooding make it impossible to recuperate or absorb payout costs
Too Few Insured
Population of claimants outnumber the population of those buying flood insurance
Exceptionally High Premiums
Reserved for those few high value properties in flood prone areas
Insurance providers avoid the high risk of loss by avoiding the market altogether
Bad Business for Insurance Providers
1994
2004
2014
2012
1973
1968
Reform
The Flood Insurance Reform Act of 1994
gave incentives to NFIP participating communities to exceed basic federal requirements when building within flood prone areas.
Further Reform
Flood Insurance Reform Act of 2004
Solvency Issues
Biggert-Waters Flood Insurance Reform Act of 2012
Current Status

Homeowner Flood Insurance Affordability Act of 2014
Creation
Created by Congress through the National Flood Insurance Act of 1968
Amended
The initial amendment through the
Flood Disaster Protection Act of 1973
Gave property owners in participating areas an opportunity to own flood insurance
Required flood insurance protection in high risk flood areas
Community Rating System: incentives offered in the form of credit to premium costs
(from the act itself)
The goal: reduce repetitive flood insurance claims from properties
Similar to the "Three Strikes" rule
Affectionately referred to as:
Two Floods and You Are Out of the Taxpayers' Pocket Act of 2003
Federally backed program using multiple private insurance companies to provide flood insurance at reasonable rates.
Fills the gap using federal funds to subsidize flood insurance that private market companies otherwise would refuse to offer
Private insurance refuses to enter the market of offering flood insurance
5,554,228
Many couldn't afford it anyway
`
57%
Private
BW-12: The Biggert-Waters Act
Major Changes
Removing Subsidies
Raises premiums for subsidized properties
ie: Those paying below market rates for insurance
New Oversight
Creates a technical mapping advisory council
Increased Premiums
Allows premiums to rise at a significant rate on the basis of the new maps
Shift of Responsibility
Transfers some risk to private sector rather than tax payers
Biggert-Waters Core Changes
Four Fundamental issues addressed by the
Biggert-Waters act
intended to improve the maps used to define flood rates
Allows purchase of reinsurance by private sector
Sections 205 & 207
Represents the "teeth" of the premium rate hikes
http://www.fema.gov/
Designed to stop the National Flood Insurance Program from going deeper into debt
Became Law in 2012
REVENUE
Premiums paid by policyholders to NFIP
Losses Paid by Taxpayers in excess of NFIP premiums
Total value of properties insured by NFIP
$3.5 Billion
DEBT
$28 Billion
LIABILITY
$ 527 Billion
http://www.americanprogress.org/
Move burden of flood insurance and damages to home and business owners
Phase in of actuarial rates
Removal of "grandfathering" rates
Areas with updated FIRMs will see their rates increase 20% annually up to actuarial premium max
Controversy in Coastal Communities
How?
1. Caps on Annual Rate Increases @ 18%
2. Repeals Property Sales Trigger
3. Repeals New Policy Sales Trigger
4. Reinstates Grandfathering
5. Refunds Overpayment by owners
https://www.govtrack.us
https://www.govtrack.us
6. Affordability - 1% Value of Policy
Shortcomings
Lack of affordability study done by FEMA
Low or fixed income affordability specifically
Plummeting home values
FIRM accuracy and levee certifications
Sold homes lose subsidy
7. State and community involvement in FIRM approval
1. "Annual reserve fund" to pay for program
2. FEMA Debt Still Exists
a. $25 Residential
b. $250 Non-Residential and Non-Primary Residences
3. Changes Are Slow
Focusing on "Actuarial Rates"
NFIP Debt at $24+ Billion
Sea Levels Continue to Rise
Populations Still Moving to the Coast
Flood Mitigation Still Needed
May 1: Premiums return to Pre-BW Act Rates
No FEMA Accountability
No Complaint/Challenge Mechanism
New Maps & No Grandfathering
4. Must be readdressed in 3 years.
Driving away middle and working class
New Rate Determination
Leaving only affluent and those on pubic assistance
Loss of tax base
"Voluntary" dropping of flood insurance for homeowners without mortgages
Businesses passing on cost of higher premiums to consumer
loss of local "mom & pop" businesses
Overview
Participating communities must:
"agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding"
https://www.floodsmart.gov
Presented by: Jeremy Caton & Tim Kraemer
Questions
Special Thanks
Dr. Thomas Linton

Chris O'Shea Roper
Homeowners' insurance excludes flood insurance
Recent large storms have bankruted NFIP
Points That Need Addressing
FEMA Affordability Study
More Scientifically Accepted Mapping
Reasonable annual increases on premiums
Government assistance for mitigation
grants, loans, credits and discounts
Full transcript