Perez said this issue is at the heart of the message NAR is sending to Congress about reauthorizing the bill next month.
Also advocating for another reauthorization of the NFIP is Douglas Heller, director of insurance for the Consumer Federation of America (CFA). Like Perez and NAR, he and the CFA have significant concerns about the consequences if the NFIP is allowed to lapse.
“There are millions of people in America who rely on flood coverage to protect the most important asset they own,” Heller said. “Letting the public flood program expire and hoping that the private market comes in would be an even bigger disaster and result in more problems than we currently have, as the private market for flood insurance is generally not protected financially by either by the public through taxes or guarantee associations.”
When it comes to reforms of the NFIP, one of the main things that trade organizations are advocating for is a long-term extension to the NFIP, which experts say would add some certainty to the market. “We need longer-term reauthorization,” Perez said. “Markets don’t do well with this uncertainty — am I going or have flood insurance in 30 days or not?”
Insurers share a similar view.
“We would love to see a longer reauthorization,” said Sean Kent, the senior vice president of insurance at FS Insurance Brokers. “If we are being optimistic, I think three years would be the best possible scenario, but even if we could get 12 months — because policies are written in 12-month terms — that would give up the knowledge that if we write a policy today, we’ll have support on it for the next 12 months.”
In addition to a long-term extension, Kent and others want to see changes in how insurance premium rates are determined through the NFIP.
“Standard insurance companies will underwrite based off of actuarial risk rate, so if you live in a higher-risk geographical area, you typically pay more for insurance, but the NFIP doesn’t necessarily work that way,” Kent said.
Instead of using actuarial rates, the NFIP has a risk rating system to determine an area’s given risk and the costs of premiums. Under this system, homeowners who are in a high flood-risk area don’t typically pay as much for their insurance as they would going through a private insurer. But according to some, this means NFIP’s pricing is more rigid than that of private insurers.
“Their pricing is based on zones and elevations, whereas private insurance is more specific to the home itself,” said Ted Olsen, a vice president at Goosehead Insurance Agency. “Under the NFIP, all the houses on one street may have very similar prices, but under private insurance, the home that has a creek in the back yard will have a higher premium than someone else on the street who carries less flood risk.”
$21 billion in debt
Although the NFIP’s system generates significant cost savings for some homeowners in high flood-risk areas, it has generated some problems. “The program is $21 billion in debt because there is not that equity in terms of underwriting and the way that rates are arrived at,” Kent said.
A recent report published by researchers at the University of Connecticut and the London School of Economics and Political Science supported the financial concerns that Kent has about the program.
“A business as usual approach to flood mitigation will cause the NFIP debt to increase further and culminate in a sudden housing market crash beginning sometime around 2060,” the report states.
This research is mostly in line with a 2016 report from Freddie Mac, which predicts $160 billion of the housing market will drop below sea level by 2050 — and $238 billion by 2100.
The report looks at properties located on the Northeast U.S. coast that were impacted by Hurricane Sandy in 2012. Prior to the hurricane, property values in the region were rising “significantly faster than the national median.”
“Since Sandy, northeastern coastal properties have been a less competitive investment, with home value growth lagging the national median by about 25%,” the report states. ”In the months since hurricanes Helene and Milton, the US has paid $480 million to restore 54,000 damaged properties. Despite the NFIP-aided recovery of structures, market values have not recovered with listed sale prices dropping by approximately 15% at the time of this writing.“
’Failure of our public policy’
Along with these reforms, Bill Killmer, seniors vice president for legislative and political affairs at the Mortgage Bankers Association, would like to see greater participation in the program.
“I think we are finding in the wake of the last two natural disasters, particularly the one in North Carolina with Hurricane Helene, a lot of people didn’t have coverage, so we need to increase participation in the NFIP,” Killmer said.
At NAR, Perez believes an effective way to achieve this is to revamp the flood maps used to determine coverage areas, and to better educate consumers about flood risks.
“The current flood maps don’t cover most of the country. They are along the coastline, just right at the ocean and then along major rivers like the Mississippi,” Perez said. “So, when a storm like Harvey or Helene happens, we have these instances where a significant share of the flooding occurs outside of special flood-hazard areas. Look at what happened in Asheville — FEMA is not mapping in places like that.”
At the CFA, Heller warns that if changes such as updated maps are not made to the NFIP, it only increases the risk of seeing events like the one in Asheville happen again.
“Asheville proves the failure of our public policy and it shows how exposed and under covered we are,” Heller said.
With the increased frequency of major flood events, Perez and NAR believe it is imperative to have a consumer-facing tool for homeowners and buyers to know their flood risk. As it currently stands, Perez said buyers should be using the NFIP’s risk rating system to get a flood insurance quote.
“If you go get a rate quote and it is very high, you need to ask questions,” Perez said. “That is significant information, and what Congress needs to do is to provide FEMA with the resources to push out that information in a direct-to-consumer portal where they can see future flood risk data for their specific address.”
But homeowners are not the only ones Killmer would like to see increased participation from. He believes more private insurers could be participating in the program but aren’t. As part of any reforms to the NFIP, Killmer would like to see more ways to encourage private insurers to get involved, such as removing some of the barriers to entry.
While it remains to be seen if any serious changes are in the near future for the NFIP, Killmer is optimistic that the incoming Trump administration will be friendly toward the program.
“At a time when we’ve got a housing affordability crisis, this is definitely another added friction,” Killmer said. “I think we have some leaders on both sides — including Chuck Schumer in the Senate and Mike Johnson in the House — who are from states like New York and Louisiana who have a key dependency on the NFIP, so they are not going to let that program expire.”
