High-risk homes could lose flood insurance

The Biden administration has proposed an overhaul of the nation’s flood insurance program. The proposal calls for denying coverage to commercial buildings and for homes in flood-prone areas. It also calls for dropping coverage for frequently flooded properties.
Currently the National Flood Insurance Program (NFIP) provides most of the nation’s flood insurance, covering nearly 5 million properties. Critics say its premiums are discounted and do not reflect the actual flood risk.

That effectively provides taxpayer subsidies, encouraging people to build in flood-prone areas, they say. It may also discourage people from investing in flood protection for their home.

The Federal Emergency Management Agency (FEMA) sent the proposal to Congress earlier this year. It would bar new NFIP policies for commercial buildings. It also seeks to drop coverage on properties that have received four claims payments of at least $10,000 each. About 20,000 properties fall into that category, the agency said.

Homeowners who make improvements to avoid flooding could be eligible for coverage again. Likewise, people could still choose to develop in flood-prone areas, but they’d have to buy coverage from private-sector insurers instead.

FEMA reports that one in every six dollars paid out under the NFIP has gone to a building with a history of multiple floods. Property owners in five states — Florida, Louisiana, New Jersey, New York and Texas — have collected more than 75% of NFIP payments since the program began. Today, the average claim exceeds $100,000.

The FEMA proposal would also create a federal requirement for property owners and landlords to disclose flood risk to prospective homebuyers and tenants. That would replace the patchwork of state laws concerning flood disclosure and mandate disclosures in flood prone areas like New Jersey and Florida where no such rules currently exist.

The administration is also asking Congress to cancel the NFIP’s $20.5 billion debt to the US Treasury — debt it incurred in 2017 following Hurricanes Harvey, Irma, and Maria. Currently the NFIP pays $400 million a year in interest to the Treasury.

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