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Federal Flood Insurance Program Struggles to Keep Head Above Water

Posted on Jun 18, 2013

Is your property covered by the National Flood Insurance Program (NFIP)? If you are one of the 5.6 million Americans who answer yes to this question, you need to be cautious of this federal program that the Government Accountability Office (GAO) has labeled as "high risk."

The NFIP is taxpayer-backed and can borrow from the Treasury. Unfortunately, past storms like Superstorm Sandy and Hurricanes Katrina and Rita have really pushed the program further and further into debt. Sandy exhausted the NFIP's cash on hand and borrowing authority last year. Congress had to pass legislation in January to increase the NFIP’s borrowing authority by almost $10 billion, making its overall borrowing authority $30.4 billion.

The GAO says that the NFIP owes the Treasury $24 billion. As of last November, it hadn't repaid any principal on its loan since 2010.

One of the main problems facing the NFIP is the fact that not enough property owners are buying insurance. If there is not enough money coming in, it is hard to pay claims as they are submitted. Last summer, President Barack Obama signed a reform bill that would improve the flood zone mapping done by the Federal Emergency Management Agency (FEMA) and increases penalties on mortgage lenders who fail to require flood insurance, as is mandated by federal law. Many homeowners do not realize that the homeowners insurance they purchase does not automatically include flood insurance—that needs to be added on separately.

With an active 2013 hurricane season being predicted, that means risks increase and premiums will increase as well. If premiums get too high, homeowners will shy away from buying flood insurance.

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