July 1, 2018

Congress Should Reauthorize, Reform National Flood Insurance Program


Unless reauthorized by Congress, the National Flood Insurance Program (NFIP) will expire at the end of this month. That must not happen.

Aaron Taylor
2018 NETAR President

As leading advocates for private property rights and housing issues, the Northeast Tennessee Association of Realtors® (NETAR) and the National Association of Realtors® strongly support the NFIP as a tool to help protect homeowners and ensure access to affordable flood insurance. Congress should reauthorize and reform the program before the deadline because a lapse in authority could jeopardize the sale of up to 40,000 homes per month in the United States.

NFIP was created in 1968 because of the lack of available and affordable insurance in the private market. It's administered by the Federal Emergency Management Agency (FEMA). It enables property owners to buy flood insurance where required for federally related mortgages, and there is no private market alternative.

According to a NAR issues paper, NFIP provides up to $350,000 of flood insurance coverage where required for federally backed mortgages in 22,000 communities nationwide. At the same time, it is an alternative to taxpayer-funded disaster assistance, which averages $5,500 per household but more often means an SBA loan that must be repaid with any underlying mortgage.

We'll be the first to admit that in its current form NFIP is far from perfect. While it is a viable option for property owners, that doesn't mean there isn't room for private insurers – the more, the better. Here's where Congress can step up. Hurdles for private insurers to enter the flood insurance market everywhere should be knocked down. And, consumers should be able to jump between private and public plans without shouldering a penalty.

It's also time for Congress to dedicate the resources necessary to mitigate flood risk that millions of property owners face while keeping insurance rates on a gradual glide path to market rates. Reducing rates through risk mediation is a "win-win" situation for both taxpayers and property owners. According to FEMA studies, every $1 spent on protecting properties against future floods saves $6 in future property damage.

Whether that means strengthening a home, raising it out of harm's way, buying out or relocating it entirely, homeowners could potentially reduce risk from damaging and dangerous flood while reducing insurance costs in one swing.

A robust, competitive private flood insurance market could offer better coverage options at lower costs than the NFIP if Congress tackles the reform task. Until that happens, reauthorization is the only viable option to ensure flood insurance is available to commercial and residential property owners and provide certainty in the real estate market.

Certainty in the real estate market is a big factor since real estate accounts from an estimated 15 percent of the national Gross Domestic Product. In other words, it's a critical part of the economy that can best be illustrated by the fact that the housing market led the Tri-Cities region – and the nation – out of the Great Recession. And, when compared to pre-recession economic benchmarks, it continues to outperform other parts of the economy that are near or still struggle for full recovery.

As currently structured the NFIP is not financially sustainable over the long run. According to the Congressional Budget Office, it is not changing enough to cover expected claims during catastrophic loss years. It has also borrowed over $30 billion to make up the difference. For these reasons, NAR supports a strengthened NFIP coupled with a robust private market to offer choices and maintain access to flood insurance in all markets at all times.

Aaron Taylor is the 2018 president of the Northeast Tennessee Association of Realtors. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and almost 100 affiliates.