Stemming the Tide of Federal Flood Insurance Costs
Policy + Politics

Stemming the Tide of Federal Flood Insurance Costs

REUTERS/Nigel Roddis

What Happened: Congress has passed legislation to sharply scale back the higher insurance premiums for hundreds of thousands of homeowners who have federal flood insurance policies. The bill would reverse many unpopular provisions from a 2012 overhaul of the National Flood Insurance Program that raised premiums for existing policyholders, required coverage for more properties, and made it difficult for many homeowners to sell their houses.

With the stroke of a pen – President Obama is expected to sign the bill into law – many residents will be able to continue buying subsidized policies, while new homeowners can take advantage of below-market rates.

Why It Matters: The National Flood Insurance Program is $24 billion in debt as a result of devastating storms such as Hurricane Katrina and Hurricane Sandy. Critics of the program say that federally subsidized insurance policies encourage homeowners to live in areas susceptible to flooding – putting the taxpayer on the hook when tragedy strikes and a wave of claims are filed. Homeowners looking to sell their properties in flood zones say that under the 2012 law, potential buyers are balking at purchases because of the higher premiums they’d end up paying.

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What It Means for You: The new changes will benefit homeowners in federally designated flood zones, mostly along the Atlantic and Gulf coasts, by capping their annual rate increases at 18 percent. Policyholders who are already paying the higher rates as a result of the 2012 law will receive rebates, unless those rates applied to a second home. Premiums for non-primary residences will still rise 25 percent a year until reaching market parity.

The changes also mean that the National Flood Insurance program will remain mired in debt – all the more so when the next storm or flood damages federally insured properties.

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