Category Archives: Flood Zones

Flood insurance is broken. Here are some ways to fix it – The Conversation 9-19-17

Flood insurance is broken. Here are some ways to fix it  

The above is an interesting article covering the dilemma facing the National Flood Insurance Program. It has some valid points and some challenging thoughts.

One addressing repetitive loss properties, not allowing access to the NFIP if a house has submitted claims equal to twice its replacement value, is intriguing. But, with coastal construction hitting multi-million figures, and flood insurance capped at $250,000, one would have to question who this would benefit most, and who would be most hurt by it.  An elderly person’s home being damaged on the waterfront, that was built decades ago, may leave that person both penniless and homeless if they cannot insure their family homestead. However, it would not preclude that property being snatched up for a song and having a new mansion constructed. Making the waterfront more exclusive.

Another proposal in the piece suggests that all homes with mortgages be required to buy flood insurance regardless of whether they are in a flood zone or not. This reinforces the idea that flood insurance is here to protect the banks, not the homeowners. It spreads the associated insurance costs out across more properties, thereby making the program more financially stable, but does not cut across all properties that may be at risk.

Perhaps a better solution, and one that would be less costly to any one part of society, would be to have all homeowner insurance policies include flood provisions and establish a basic flat fee for flood insurance.  According to Zillow, the total value of all homes in the United States topped $25.7 trillion in 2013. A 0.01% of home value flood insurance fee could generate $2.5 billion in revenue for flood insurance annually. With more storms the size of Harvey, Irma and Maria expected, at 0.04% of home value, $10 billion could be generated annually at a cost to the average homeowner of about $140 per year. By making flood insurance a standard part of homeowners insurance, the average homeowner could be protected as well from flood damages.


Flood Insurance Reauthorization – Discussion and Opinion

The NFIP needs to be reauthorized by September 30th.  At this point there appears to be two central pieces of legislation and a variety of smaller side pieces being circulated.  Below is my attempt to summarize, not necessarily in an unbiased manner, what is going on.
On the House side there are two key bills, one is for a full reauthorization (HR2874) the second that only sets a rate cap (HR2868).  The consensus of the reviews are that HR 2874 will be devastating on coastal communities. HR2874 will remove insurance for repetitive loss properties and make new construction in flood zones uninsurable under the NFIP.  The sponsor has been stated that coastal properties are a drain on the NFIP as these “coastal mansions” cost too much to repair. Forget the fact that flood insurance is capped at $250,000 for everyone.
Starting with the new construction aspect, while not promoting construction in “harm’s way” may be a good idea, given the recent Chatham takings case, there could be some significant financial ramification for this. We would have to decide, do we set standards for flood zone construction and allow them to build, probably on a cash basis, without flood insurance? The obvious risk to us would be structures that might eventually be damaged and abandoned that the public might have to foot the bill to remove after tax foreclosure.
Relative to repetitive loss properties, every structure within the flood zone is anticipated to have to file a claim eventually. For Dennis, we have over 3,000 residential structures, or 1/5th of our housing units, in the flood zone. If these properties lose flood insurance after filing a claim, the impact will be devastating to the local housing market. Nearly everything south of Lower County Road between the Swan River and Bass River and about a quarter of the homes south of Route 28 across town would be impacted.  The impact would be two-fold, first we would face a housing market collapse within the flood prone area as mortgage companies would be required to turn away from these areas. In areas outside the flood zone, as our second home market would, most likely continue to flourish, would see sky-rocketing property values.  Even if the cash market remained strong in the flood zone, where 2/3rds of the sales in recent years have been cash transactions, there will be a definite downward push on real estate values, and if mortgaged properties are damaged by flooding, we will have properties walked away from which is still adversely impacting parts of New Jersey from Sandy and Mississippi and Louisiana from Katrina.
“The bill would strip federal flood insurance eligibility from certain properties that flood repeatedly, some expensive properties, and new properties built in designated flood zones.”
Caps flood insurance at $10,000 for a single family home, voted out of Committee along with 2874. I can find no outside summaries as basically this is a very limited scope bill.
The Senate Bill is better and seems to be the one that is getting the most support. It is mostly a step in the right direction. It caps rate increases to 10% rather than the 25% that came out of Biggert-Waters and the subsequent “affordability” amendments. Protects affordability, promotes expenditures on mitigation efforts for flood prone properties and freezes interest on FEMA debt to the Treasury for Katrina and Sandy. 
In my view, and that of many who have been following this, it does not go quite far enough. There is no insurance required for areas in California and elsewhere for wild fires or mudslides. Oklahomans, Missourians etc. are not required to carry tornado insurance. Rather, national disasters are declared and regular homeowner insurance providers are “rescued” as the federal government covers rebuilding. Flood disasters need to be handled in the same fashion as other “natural disasters” with the federal government recognizing
Recently I read about a home in Oklahoma that was being rebuilt for the third time after being hit by a tornado, yet our repetitive loss properties will lose the ability to be insured. There needs to be a limit on the NFIP responsibility for storms. In October and November 2016 the NFIP faced nearly $4 billion in claims from flooding. Up until then it had been a pretty good year for them. These two months probably left the program in the red. For homeowners in these areas (and here) the impact is two-fold. First you have to deal with the flood insurance recovery, but, second, you need to deal with your homeowners policy for “non-flood” damages. In New Jersey, after Sandy, they have found that this means two deductibles that climbed for many as high as $10,000 as insurers push the highest deductibles since “floods only happen once every 100 years” and “who really gets much wind damage?” When you have to find emergency housing, who has $10,000 to spend before you can tap your insurance reimbursement?
In the House Committee on Financial Services Rep Maxine Waters (Biggert-Waters Act co-sponsor) called for:
Given the CBO notes that the program takes in $4.3B in premiums……
Anyway, here is a link to the Senate offering that is co-sponsored by Senator Warren, it is probably the best we can hope for, but we should continue to push for perhaps a $2 billion storm cap (wind and flood damage) that turns a Flood Insurance covered event into a national disaster that is funded through grants and not the flood insurance program.
And a summary document: 
We are trying to get a meeting set up with Congressman Keating and Senator Warren. The timing is short.

N.J. Democrats and Republicans blast Trump plan for flood-insurance hikes

N.J. Democrats and Republicans blast Trump plan for flood-insurance hikes

We will continue to monitor the update to the National Flood Insurance Program. We are working with Representative Tim Whelan to set up a meeting with our Congressman and Senators on this reauthorization.

As reported in this article, many of the proposals will dramatically increase costs to homeowners located in the flood zone. Given actual amounts Dennis residents have received in the past from the NFIP, alternatives are a must.