Romano: Your flood insurance policy may have run out of reprieves

Storms like last September in Houston have helped put the National Flood Insurance Program $25 billion in debt. The NFIP has been reauthorized until July 31, but future extensions will no longer be tied to federal budget deadlines.  [Eric Thayer/The New York Times]
Storms like last September in Houston have helped put the National Flood Insurance Program $25 billion in debt. The NFIP has been reauthorized until July 31, but future extensions will no longer be tied to federal budget deadlines. [Eric Thayer/The New York Times]
Published March 24, 2018

Since the fall of 2017, the National Flood Insurance Program has been poised to expire six times. And six times, Congress has eventually kept it alive with a temporary funding reprieve.

The seventh time may not be so easy.

The latest spending bill approved by Congress will keep the NFIP up and running until July 31, but this time there is a caveat. NFIP funding is no longer on the same timetable as the federal budget.

So, what does that mean in real terms?

The flood insurance program was always included in spending bills that were necessary to avoid federal government shutdowns. Now, the NFIP will expire two months before the next spending bill.

Essentially, this is a tactic to force flood insurance reform this summer. And that led the National Association of Professional Insurance Agents to declare they were "alarmed'' by the ramifications.

"The threat of Congress recessing for August with the NFIP lapsed is a real possibility,'' said Jon Gentile, a vice president for the insurance agents group. "In fact, this year alone, while attached to 'must pass' appropriations legislation, the NFIP lapsed briefly twice.''

So, what's going on?

It's sort of a family fight. Just on a national scale.

Much of the country looks at the $25 billion debt the NFIP has run up in the past decade and insists we must stop subsidizing rates. Coastal states, meanwhile, are crying foul.

And you probably should be, too.

If the NFIP were allowed to lapse, it would devastate the real estate market in Tampa Bay and elsewhere. Sales of homes in low-lying areas would practically screech to a halt, and that would drive down sale prices and eventually affect the area economy.

Similarly, a revamping of the NFIP could potentially drive up flood insurance rates for a lot of middle class homes to an unhealthy level.

In other words, we are now counting on Congress to find a sane, equitable solution. In four months. After going years without figuring out an appropriate fix.

Now you know why my keyboard is sweating.

To be fair, there is no simple answer. When Congress tried to fix it in 2012, with the Biggert-Waters Act, it sent flood insurance rates soaring to absurd levels. Congress reversed the worst features of Biggert-Waters in 2014 but didn't really address the mounting debt.

Four years later, we're still seeking a solution that works for the entire country. But the fact that lawmakers separated flood insurance from this latest spending bill could be a sign that the budget hawks are starting to gain some ground in this war.

"The weight and burden of this cost is in the back of congressional minds, along with the ongoing debt,'' said Laura Lightbody, who directs the Pew Charitable Trusts flood-prepared communities initiative. "At what point is enough enough? Taxpayers are continually on the hook for this rebuilding of these repetitive loss properties.''

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The U.S. House of Representatives passed flood insurance legislation last year that Lightbody said included many positive reforms, but also troubling language for some coastal communities. The Senate never took up the House reforms, but instead has several bills of its own.

None of that bodes well for a solution this summer, but Sanibel insurance executive Chris Heidrick says the situation is not as dire as it might seem. While the NFIP has been removed from the spending bill schedule, it could still be temporarily reauthorized until after the 2018 elections.

Then a new Congress could take a stab at the problem next year.

Heidrick, who is the chairman of the National Flood Insurance Task Force, said the answer could be provided by the growing industry of private flood insurance.

While there was once concern that private companies would cherry pick all the safest policies, Heidrick says the early evidence indicates the opposite.

The NFIP is not charging enough for policies in preferred, or low-risk areas, and overcharging in the mandatory zones. So private companies can actually make more money by providing cheaper coverage for the most hazardous properties. And that's an indication that the NFIP needs to overhaul its pricing strategy.

In other words, all those $400 policies need to be more expensive and those $4,000 policies need to be cheaper.

"The private market has always been able to innovate more quickly,'' Heidrick said. "What we're seeing now is private insurers may be providing a road map for Congress to follow.''

In the interim?

It's business as usual.

NFIP policies are set to increase by 8 percent next week.