Water Damage: Recent Flooding Highlights Need for Private Flood Insurance Reforms


 Tom Larson  |    October 08, 2018
Water Damage

In recent weeks, many Wisconsin communities experienced historic rainfall levels and massive flooding. The flooding wrecked homes, destroyed businesses and devastated communities. Some communities received more than 20 inches of rain in two weeks, which is more rain than these communities generally receive in six months. 

With final numbers for flood damage still being calculated, some estimates show the amount of property damage to be greater than $233 million. Unfortunately, many of these properties were not covered by flood insurance to help pay for the damage because their homeowners’ insurance policies did not cover flood damage and they are located outside designated areas eligible for flood insurance under the National Flood Insurance Program (NFIP). 

The only option for properties not eligible for NFIP is private flood insurance. In many parts of the country, private flood insurance is not as readily available as other insurance products and, if it is available, it is often cost-prohibitive. In some states like Florida, private flood insurance is available and offers better flood insurance coverage at lower prices than the NFIP. However, numerous regulatory barriers at the federal level have made it difficult for the private flood insurance market to become fully established in these areas. 

The National Association of REALTORS¬ģ (NAR) has been working to remove the regulatory barriers to private flood insurance at the federal level and has identified the following regulatory reforms to make private flood insurance more readily available:¬†

Clarify that ‚Äúcontinuous coverage‚ÄĚ includes private flood insurance. Federal regulations require ‚Äúcontinuous coverage‚ÄĚ with an NFIP policy in order to keep existing or grandfathered flood insurance rates when new flood maps change. If a homeowner switches to private flood insurance and the rates increase or the insurance product is no longer available, the homeowner could seek coverage again from the NFIP, but the insurance rates could be much higher than the homeowner was previously paying. The potential for higher future rates is a strong disincentive for homeowners to pursue private flood insurance.¬†

Require lenders to accept private flood insurance that meets the federal standard for the minimum amount of coverage, but satisfies state standards for all remaining insurance requirements such as deductibles and exclusions. This change would treat flood insurance like other insurance products, which are generally regulated at the state level. 

Clarify that property owners may satisfy the mandatory purchase requirement with either an NFIP policy or private market coverage that meets state law. 

Ensure that consumers can move freely between the NFIP and private coverage without penalty of losing grandfathered NFIP rates.

Preserve the NFIP as a viable option, keeping homeowners from becoming stranded if private insurance options become unavailable or more expensive after major floods.

Maintain important consumer disclosures as well as Fannie Mae/Freddie Mac’s ability to examine the financial solvency of private insurers and protect taxpayers.

In 2017, Congress introduced legislation, the Flood Insurance Market Parity and Modernization Act (S.563/HR 1422), to address these regulatory reforms. The legislation is authored by a bi-partisan group of legislators from both houses: Senators Heller (R-NV) and Tester (D-MT) and Representatives Ross (R-FL) and Castor (D-FL). The legislation passed the House of Representatives during the 2015-16 session with unanimous support. The bill was reintroduced this session, and many of the provisions were also included in the 21st Century Flood Reform Act (HR 2875), which is authored by Wisconsin Congressman Sean Duffy and passed the House with bipartisan support last November and is awaiting Senate action. 

As demonstrated by the tremendous damage caused by recent flooding in Wisconsin, making private flood insurance more readily available to homeowners and other property owners is necessary. Hopefully, Congress can find a way to enact the necessary regulatory reforms before the next flood occurs in our state.

Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.

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