National Flood Insurance Program (NFIP)
US Senators from New Jersey, Cory Booker and Bob Menendez have written a letter to Federal Emergency Management Agency (FEMA) calling for changes to the National Flood Insurance Program (NFIP). The letter states that the agency that oversees flood insurance for millions of homes in vulnerable areas has done too little to mitigate the risks and costs to home owners. The senators questioned whether private insurance (Write Your Own (WYO) insurance companies) is efficient and cost effective and called for greater oversight of NFIP.
The senators are calling for the following reforms:
1. Reevaluate the long-term role of WYOs (private insurance companies) in the NFIP and whether eliminating the “middlemen” creates greater efficiencies and cost-effectiveness
2. Eliminate flat fees and institute a performance-based compensation structure for WYOs and other private contractors to reward quality, rather than quantity of claims handled
3. Require WYOs to provide FEMA, policyholders and their advocates, any and all documentation that was produced to process their claim or adjudicate an appeal
4. Improve the appeals process by eliminating arbitrary deadlines and giving policyholders the option of appealing their claim to an independent, third-party arbitrator to restore trust in this process
5. Provide a streamlined method to handle legal disputes in good faith that prevents insurance attorneys from billing exorbitant fees at the expense of policyholders and ensures every plaintiff gets what they are entitled to, rather than spending extensive resources to deny and fight legitimate claims in court based on technicalities
In my opinion, these reforms do not address the core of the problem. The cost of flood insurance for homeowners and businesses has gotten way out of hand. The NFIP was begun to address this problem because private insurers were unwilling to take the risk at a reasonable cost and many times not at all.
Whether the program was a mistake and whether it has encouraged development in vulnerable areas is beside the point. What we have now cannot be changed easily. It is unconscionable to abandon property owners who have one of their most important investments wrapped up in vulnerable real estate. In this area of Florida there are many homeowners and business owners who were lead to believe that that they were making a reasonable investment and would be able to afford their insurance.
While this problem must be addressed, a reasonable alternative must be offered. To allow insurance premiums to skyrocket would cause real estate values to plummet in vulnerable areas. Owners would be stuck with worthless properties. On the other hand, as a country we cannot continue to subsidize these areas and allow property owners to repair or rebuild in flood prone areas.
My suggestion is to grandfather insurance premiums in these areas. Property owners should be encouraged to purchase NFIP insurance at reasonable cost and once bought, they should be able to renew their policies at no higher increase than inflation. A standard should be set that if a property is damaged by flood and the repairs are beyond a certain percentage of the value of the property or other criteria, the home will be condemned, the owner will receive payment and if the owner chooses to rebuild at the same location, no new policy shall be written. Property owners should receive assistance in relocating to an area outside of the vulnerable area.
There should also be a neighborhood wide policy. If a certain percentage of homes in an area are condemned, the neighborhood should be condemned and owners encouraged to move. The land can then be reclaimed as a clean, natural area.
This policy would offer property owners security and fairness while gradually eliminating development in vulnerable areas.
Finally, there should be a means of addressing the concerns of owners of vacant land in these areas which will be zoned uninsurable. A tax credit equal to the assessed value of the land could be considered.