Over 5 million people spread across 20,200 communities hold a flood insurance plan. In the year 2005 the National Flood Insurance Plan (NFIP) had paid out close to 16 billion. The premiums paid by the 5 million have only surmounted to 2 billion, therefore the NFIP has the ability to reach out to the US Treasury. With the US Treasury enabling the NFIP to meet its financial obligations, the financial obligations are becoming the obligation of the taxpayers (GAO, 2005) (Wells, 2005).
The goals of the NFIP are “to provide property flood insurance coverage for a high proportion of property owners who would benefit from such coverage, through this insurance coverage reducing taxpayer funded disaster assistance when flooding strikes and reducing flood damage through flood plain management and the enforcement of building standards (such as elevating structures)” (GAO, 2005). A community must reach out to FEMA, and FEMA authorizes the sale of flood insurance, based on an emergency status, or regular status.
It is up to FEMA to assess the degree of flood risk and developmental potential (Fegan & Olexa, 1998). FEMA is obligated to provide accurate flood maps. Today, FEMA is able to create a more accurate flood map than the maps that were available during the inception of NFIP. Today’s flood maps are digital, therefore more accurate and more accessible. These maps are underlining where the risk occurs in a community. These maps reduce the flood risk within the floodplains by allowing the community to effectively regulate development through zoning and building standards.
These digitized maps are now available on the internet, allowing more people access to these maps. Homeowners will be able to easily identify if they should be taking part in the NFIP. These maps will also be useful in the mitigation and risk analysis of the areas (GAO, 2005). FEMA is responsible for ensuring that the flood zone take part in a Flood Insurance Study (FIS). “The purpose of the FIS is to establish or refine the flood plain boundaries for the flood that has a 1% chance of being equaled or exceeded in any given year” (FEMA, 2002). This type of model flood is also referred to as the 100 year flood.
It is ultimately the responsibility of FEMA to determine the hazards and risks of the flood plain, and once this information is made known, the risk is transferred directly to the insurance industry for coverage. The methods in which FEMA utilizes to calculate risk are thorough, and vary depending on region. In this period of designation of the flood plain area, there is a period of 90 days when an appeal can be made (FEMA, 2002). FEMA is responsible for the continued oversight of the NFIP to ensure that all 95 insurance companies that participate are following the guidelines set forth.
The NFIP is able to work with the insurance companies in a time of crisis by investigating all of the information previously set out by FEMA, for example the digital flood maps, aerial imagery and water depth analysis (Floodsmart. gov, 2005). The burden of flood insurance continues to be a battle between all involved. The past disasters have proven that the current system cannot withstand the financial impact. However people living in these areas have not made a conscious attempt to obtain flood insurance.
“Flood insurance participation rates in flood prone areas of New Orleans, La. , Mobile, Ala., and Gulfport, Miss. are less than 30%, despite mandatory flood insurance for holders of mortgages from federally regulated lenders” (Wells, 2005).
There are many reasons as to why these areas are so low in compliance. A major factor in these areas not having this flood insurance is because it is an added expense. History has shown this demographic “There is a widespread belief that large amounts of government aid will be made available to disaster victims after an event and so there is little point in buying flood coverage if largely the same benefit is available for free” (Wells, 2005).
The government needs to begin enforcing the NFIP. There is no evidence to suggest that homeowners who are mandated to hold flood insurance are actually holding this insurance. This mandated insurance needs to shift from not only federally regulated mortgage companies, but to all lenders. All homes in special flood areas need to have insurance to protect the investment on the home (GAO, 2005). State and local government officials should begin to educate their populations on the benefits of obtaining flood insurance.
Knowledge can be extremely powerful in these circumstances. Homeowners may want to take part in a policy if all of the benefits are demonstrated, such as coverage continues even if a disaster is not declared by the President, there is no repayment of a loan as in the Federal Disaster Relief Loan. Through government officials and the private sector educating the public together, ignorance can be eliminated. (Floodsmart. gov, n. d. ). Government and private insurance industry could also work together to initiate catastrophe funds.
“Any structure that provides meaningful public sector catastrophe coverage will result in a significant savings that can be passed on directly to consumers. This savings would stem from the lower cost of the reinsurance that insurers buy to cover their own losses” (Reilly, 2007). These types of catastrophe funds would be able to alleviate the stresses placed on the private insurance industry that occurs when one storm costs millions of dollars in property damage, essentially wiping out the private insurance companies (Reilly, 2007).
The government and the private insurance industry need to focus on the problems at hand, before the next big disaster strikes. Forming an alliance, and working to educate the populations, and attempting to follow through on mandatory flood insurance is a step in the right direction. Catastrophe funding would be beneficial to both parties, without creating more strain on the taxpayers. The current financial state of the NFIP is in near crisis. Although the NFIP was not designed to be actuarially sound, it was not designed to be such a drain on the US Treasury either (GAO, 2005).
The NFIP needs the ability to generate funding, to reduce the strain on the US Treasury. The first step is to collect on all of the mandatory premiums. Money needs to be spent, but money makes money. If a little time was invested in the areas where mandatory flood insurance was required, the benefit would outweigh the initial expense. The continuous drain on the NFIP by repetitive loss properties needs to end. “These properties account for roughly 1 percent of properties insured under the NFIP, but account for 25 to 30 percent of all claim losses” (GAO, 2005).
Many of these properties are insured at a subsidized rate, causing even more of a drain on the NFIP. Serious consideration must be made to elevate, relocate or demolish these dwellings (GAO, 2005). Studies should be undertaken for all claim losses, and if there has already been a loss and it is a subsidized property, then the full rate should be charged. The NFIP cannot continue to dole out resources to homeowners who have not learned the lessons from the past floods. “If you’ve suffered.
numerous losses over the last decade, you should be forced to accept mitigation to your property, or start paying non actuarial non subsidized rates for your flood insurance”, stated by Patrick O’Brien Director of Federal Government Affairs for the Independent Insurance Agents and Brokers of America (Wells, 2005). Grandfathered properties need to be reevaluated in regards to the subsidy. If steps have not been taken to protect the property to the best of the ability, then the subsidy should be lifted. The subsidies by the NFIP should not be a right, but an earned privilege.
If the guidelines to retaining the subsidy are not met, the subsidy should no longer apply. Building codes and restrictions need to be enforced especially in flood prone areas. Care must be taken that flood damage resistance standards must be met, and flood maps should be consulted before building. The goals of the NFIP are admirable; protect individuals who suffer losses through insurance, to reduce future damages through floodplain regulations, and to reduce federal expenditures related to flooding.
(FEMA, 2002) All of these can be achieved, through education, and a tighter reign of the NFIP by FEMA.The citizens of the US need this program, and they need to be fully operational and functional, not restricted by past floods and disasters.
References Federal Emergency Management Agency (FEMA). (2002, August 1). National Flood Insurance Program – Program Description. Retrieved June 18, 2007 from http://72. 14. 209. 104/search? q=cache:Rja3SXP3GVYJ:www. fema. gov/doc/library/nfipdescrip. doc+The+purpose+of+the+FIS+is+to+establish+or+refine+the+flood+plain+boundaries&hl=en&ct=clnk&cd=2&gl=us Fegan, R. & Olexa, M.(1998).
The Disaster Handbook: How the National Flood Insurance Program (NFIP) works. Retrieved June 18, 2007 from http://209. 85. 165. 104/search? q=cache:eTvpkW-4_g8J:disaster. ifas. ufl. edu/PDFS/CHAP04/D04-36. PDF+NFIP&hl=en&ct=clnk&cd=17&gl=us Floodsmart. gov. (2005, September 20). NFIP announces simplified adjustment process. Retrieved June 19, 2007 from http://www. floodsmart. gov/floodsmart/pages/pr_sep20a_2005. jsp;jsessionid=C29193FD2E99B14FD6368F9A8FF77F09 Floodsmart. gov. (n. d. ).