What many people do not realize is that most homeowners policies, business owners policies, and commercial insurance policies exclude coverage for flood (rising waters etc.).  The National Flood Insurance Program (NRIP) was created because most insurers are reluctant to insure for this peril.  Even before Harvey hit Texas, the NRIP was in serious financial trouble.  NRIP had been running deficits for years even in good years and now is close to running out of authority to borrow money from the US Treasury.

Currently the NRIP program owes the US Treasury $24.6 Billion.  It has authority to borrow up to $30.4 Billion.  Early flood insurance losses from Harvey are projected to be between $6.5 Billion and $9.5 Billion.  In addition the authority for FEMA to continue NRIP runs out on September 30, 2017.  It not reauthorized the NRIP can continue to pay claims but will not be able to renew or issue new policies.

Many property loan contracts that are in flood prone areas require flood insurance.  Without being able to renew or issue new policies many of these loans will be technically in default.

As with many government programs, Congress has tried to hide the true insuring cost of allowing property built in flood prone areas by not allowing the insurance marketplace to work and charge actuarially sound rates.  If the rates needed to cover the true property exposure in these flood prone areas were charged the cost of home ownership could be unaffordable.  Many homes would not be rebuilt multiple times. 

Basically Congress subsidizes bad policy continuing to charge less than the needed premiums.   As the seas continue to rise, this problem is only going to get worse.  Call it welfare for water front living.

Posted 4:17 PM

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