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How high’s the water?: The United States Flood Insurance hearings

Flood insurance sounds pretty self-explanatory to the layman. The name says it all: it’s a type of insurance a homeowner may purchase to protect his or her home from future flooding. In some parts of the United States, like Florida and Louisiana and really anywhere near large bodies of water, flood insurance is a must-have but, if a hurricane, or excessive snow strikes a different area, flooding can still become a major problem.And now flood insurance–and more–is in jeopardy.

A hearing held on May 9 by senators Jon Tester (D-Mont.) and David Vitter (R-La) addressed the issue of a potential end to flood insurance–a very real threat that could occur if the National Flood Insurance Program, a creation of FEMA (the United States’ Federal Emergency Management Agency), ends without renewal at the end of May as it is currently scheduled to do.

“We’ve been down this road before,” said Senator Tester as reported in Insurance Journal, “and we’ve seen how unproductive and destructive lapses of the program can be. The unprecedented flooding in the Missouri River basin at this time last year further reminds us of the urgency of passing a long-term reauthorization that offers Americans certainty in the face of risk.”

While this hearing was held by the bipartisan members of the Economic Policy Subcommittee of the Banking Committee, it featured a comprehensive panel of experts such as representatives from the Property and Casualty Insurers Association of America, The Nature Conservancy, and the Missoula County floodplain administrator of Tester’s state of Montana.

The National Flood Insurance Program, according to FEMA’s web site, encompasses three components: flood insurance, floodplain management (a community program of corrective and preventative measures for reducing flood damage), and flood hazard mapping. FEMA goes on to explain the program by saying that, “nearly 20,000 communities across the United States and its territories participate in the NFIP by adopting and enforcing floodplain management ordinances to reduce future flood damage. In exchange, the NFIP makes Federally backed flood insurance available to homeowners, renters, and business owners in these communities. Community participation in the NFIP is voluntary.”

But many have their issues with the NFIP for various reasons. Jon A. Jensen, the Governmental Affairs Committee chairman of the Independent Insurance Agents and Brokers of America, said that the program had accrued $17.2 billion in debt in 2005 and urged modernization of NFIP as well as strengthening its finances. Property and Casualty Insurers Association of America’s David A. Sampson also voiced concern. He noted that FEMA seemingly underprices flood insurance policies by 20 to 50 percent (his information is based on a RAND study) and that it amasses at least $1.3 billion in debt per year.

Because permanent reauthorization of the program is not visible in the near future, May 31 will bring about the end of the National Flood Insurance Program unless an extension is adopted for either a short amount of time or until the end of the 2012 year. This has proved disheartening for flood insurance owners who have seen short term reauthorizations of the NFIP twelve times since September 30, 2008.

No matter what happens with flood insurance, a decision has to be made at some point. And affected homeowners are hoping for a resolution to this stress point sooner rather than later.