November 2013 – Flood Alert

By, Tony Shepley

Will Rogers, famous cowboy and humorist of the 1920’s and 30’s once said, “You can lead a man to Congress but you can’t make him think”.  On the heels of our soon to be bankrupt Social Security system; our over whelming national debt; our current tug of war over the debt ceiling; and our continued deficit spending, we have another challenge coming to a head – potentially drastic flood insurance premium and deductible increases as well as decreased insurance availability in re-mapped floodplain areas.

First a bit of background. The National Flood Insurance Program (NFIP) is a program that Congress created in 1968. It was created to provide an insurance alternative to disaster assistance from the government in the case of flood damage.  Though NFIP was intended to be self-supporting, claims have far exceeded premiums paid. In the past 35 years NFIP has paid out $41.9 billion in claims. More than 39% of that payout has gone to victims of Hurricane Katrina.¹ Current debt of the NFIP (borrowed from the US Treasury) will stand at around $28 billion once the Superstorm Sandy settlements, of some $7 billion, are all paid out. In January 2013, Congress raised the NFIP’s borrowing limit from $20.7 billion to $30.4 billion. The NFIP is just one natural disaster away from needing to increase its borrowing limit beyond the $30.4 billion.² The largest problems with NFIP are related to the repetitive losses that account for more than 1/3 of the claims. Existing policies have been “grandfathered” so that insured parties may rebuild what they lose, with no requirement to take preventive measures, and no increase in premium rates, thereby creating no incentive to rebuild to a safer standard that could prevent future claims.  The Biggert-Waters Flood Insurance Reform Act of 2012 attempted to address some of the structural problems of the NFIP and to reduce the exposure created by the program. The Biggert-Waters Act would eliminate grandfathering, allow for significant increases in insurance premiums (up to 25% per year until the new market rate is achieved) and essentially get the Federal Government out of the flood insurance business. The true consequences of the Biggert-Waters Act weren’t understood and Rep. Maxine Waters (D-Calif), co-author of the bill along with Rep. Judy Biggert (former, but now retired, R-Ill), has now released a statement saying that she is “outraged by the increased cost of flood insurance premiums that have resulted from the Biggert-Waters Act. I certainly did not intend for these types of outrageous premiums to occur for any homeowner”.³ Rep Waters has now asked that her own law be changed to deal with its unintended consequences.

Further heating up the issue is the current re-mapping of floodplains, based on past hurricane and storm data, by FEMA (Federal Emergency Management Agency). Updating these maps means some homes that were not previously in the flood zone now are. A Cape based insurer told me that, as a for instance, the town of Dennis with some 10,000 homes now has 1,000 of those in the floodplain.  After re-mapping, Dennis will have 3,000, almost one-third of the town’s homes, in the floodplain.⁴ He said that private lenders may limit flood insurance to $250,000 per property, the maximum coverage available for residential properties, through NFIP.  Homeowners will have the option to purchase an “excess” policy from private insurers to cover replacement costs over $250,000.  In the most severe exposures, policy’s could cost tens of thousands of dollars per year. Insurance limits will be a huge issue with mortgage holders and increased insurance premiums will be a major problem for homeowners. Property values would be factored by insurance availability and cost. The effects of these changes hit everyone in coastal communities, either directly or indirectly.

This problem has been brewing for some time. It didn’t arrive overnight and it won’t be fixed overnight. “Denial ain’t just a river in Egypt” said Mark Twain. We have to face this issue logically and systematically.

1.)Tell your Senators and Representatives that it’s time to work out the details before pulling the trigger on the FEMA re-mapping and continuing with the unintended consequences of the Biggert-Waters Act.

2.) Check the FEMA floodplain maps to see where you are now and will be after re-mapping. If it’s close, you will likely need an Elevation Certificate from an engineer to prove your status. This will require a call to action as the wheels are already in motion.

I’ll leave you with one more quote from Will Rogers, “Be thankful we’re not getting all the government we’re paying for!”



1 http://www.fema.gov/significant-flood-events

2 http://www.propertycasualty360.com/2013/03/25/as-nfip-faces-deepening-debt-some-call-for-more-su

3 http://www.insurancejournal.com/news/national/2013/09/30/306602.htm

4 http://www.wickedlocal.com/plymouth/news/x369947709/FEDERAL-EMERGENCY-MANAGEMENT-AGENCY-Flood-maps-changing-insurance-rates-rising?zc_p=0


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