Pennsylvania lawmakers should consider granting homeowners tax breaks for water damage expenses, mitigation and repair costs, and flood insurance premiums, according to a new state report.
Those are several of the recommendations by a task force that studied ways to better protect Pennsylvanians from uninsured flood losses by increasing mitigation efforts and encouraging more property owners to purchase flood insurance.
There are 3.1 million insured homes in Pennsylvania – but only about 50,000 are insured against flooding, according to the Federal Emergency Management Administration (FEMA), which administers the National Flood Insurance Program (NFIP).
FEMA statistics also show that from 2013 through 2023, Pennsylvania property owners filed more than 7,580 claims with the NFIP and were paid more than $284 million for damages.
In addition to tax incentives, the report also recommends creating a state post to assist communities in qualifying for lower NFIP rates; improving flood disclosure in real estate transactions; and requiring flood risk continuing education for real estate and insurance agents.
The recommendations are the result of five public meetings held between February and August across the state. The task force, headed by Insurance Commissioner Michael Humphreys, received testimony from experts on emerging flood risks, effective mitigation measures, and the importance of insurance in bolstering community resilience.
“We recognize that implementing these recommendations may necessitate legislative action, funding, and additional resources, yet the Task Force firmly believes these recommendations are a first step toward enabling the Commonwealth to effectively tackle challenges concerning flood risk throughout Pennsylvania, while also enhancing the accessibility and availability of flood insurance,” Humphreys wrote in his introduction to the report.
The nine recommendations are as follows:
- Establish an Office of Community Rating System Assistance and expand grants to communities
- Improve disclosures during home-buying process
- Incorporate flood risk and insurance continuing education across professional roles
- Enhance education/outreach on flood risk and insurance
- Incentivize home mitigation through tax credits
- Enhance coverage for water damage by educating homeowners on endorsements and products
- Incorporate flood resiliency into building codes
- Propose a Pennsylvania Flood Insurance Relief Act to allow insurance premium tax deduction
- Further study innovative insurance solutions including group insurance
Insurance Market
While the federal government’s NFIP provides important coverage, since 2016 the private flood insurance market in the state has grown from around 1,500 policies to almost 16,000 policies in 2023. Initially, the private flood insurance market in Pennsylvania consisted of mostly surplus lines. Today, according to the report, Pennsylvania’s private flood insurance market is made up of 54% surplus lines policies and 46% admitted policies. While the admitted market does write flood policies, the coverage generally does not comply with federal lending requirements for designated Special Flood Hazard Areas (SFHAs).
The task force recommends that the state insurance department investigate new insurance options including the possibility of group insurance for flood insurance. The department should also evaluate other states’ approaches to protecting residents against catastrophes, including premium assistance, disaster recovery assistance, and incentives for home and community hardening measures, the report says.
The Pennsylvania Insurance Department lists 26 private insurers as currently licensed to offer some form of flood coverage.
Tax Breaks
To incentivize more homeowners to buy flood insurance, the task force made several tax recommendations. One calls for state lawmakers to provide tax credits or deductions for costs incurred by homeowners who make repairs so their homes are more flood-resistant or who take other mitigation measures that better protect their homes from flood damage.
Also, the General Assembly should explore opportunities for Pennsylvanians to claim disaster-related expenses on their taxes, the report advises.
Another recommended tax break would allow homeowners to deduct flood insurance premiums from their state income taxes. Although the fiscal impact of this state income tax deduction has not been quantified, the report notes that the total written direct premium volume in Pennsylvania for personal lines residential flood insurance premium in 2023, including NFIP policies, is approximately $70 million, representing the upper limit of potential allowable tax deductions. The average flood insurance premium in the state is about $1,381.
Community Assistance
The recommendation that the state create a post to help communities qualify for federal insurance discounts refers to the Community Rating System (CRS), a voluntary incentive program within NFIP that recognizes community flood management practices that exceed the minimum requirements of the NFIP. In CRS communities, flood insurance rates are discounted to reflect the reduced flood risk resulting from the community’s efforts to reduce vulnerabilities of properties to flood damage.
The task force said that during its meetings, some presenters expressed frustration with the complexity and resources necessary to become a CRS community. Currently, there are only 1,500 CRS communities nationwide and only about 30 in Pennsylvania. Also, even in communities that have met the qualifications, the task force found that residents may be kept from obtaining flood premium discounts because their community is not formally enrolled in the CRS program.
The report also calls for additional state grants for communities to assist them with flood management activities.
The report urges the state to consider climate and flood resiliency when adopting and maintaining commercial and residential building codes and standards for municipalities.
Randy Padfield, director of the Pennsylvania Emergency Management Agency, called the state “one of the most flood-prone” and noted that recovery is often a years-long effort. “Any steps that we can take to promote flood mitigation activities and assist homeowners and renters with obtaining affordable flood insurance will hasten recovery efforts and benefit our communities and our citizens for years to come,” Padfield said.
Avoid Insurance Crisis
The task force recommends that the state add a new law requiring disclosure of whether a property must have flood insurance in order to obtain a mortgage, as neighboring states New York and New Jersey have. Pennsylvania law already requires home and property owners to disclose to a buyer if the seller is aware of any past or present flooding issues affecting the property and if any part of the property is located in a high-risk flood area.
Additional recommendations call for enhanced outreach and education for homeowners as well as for real estate and insurance agents.
State Senator Lisa Baker warned that Pennsylvania needs to act to avoid situations experienced by other states where some property insurance companies are exiting, restricting coverage, and raising premiums. “This is a crucial juncture for us to consider some fundamental changes before our situation deteriorates into crisis,” Baker said. “There are broad questions about flood protections, mitigation measures and financial coverage that require practical and effective answers. This task force was a good avenue for giving all sides the chance to participate, raising the discussion above partisan or philosophical considerations.”
Topics
Flood
Pennsylvania
