FHA Acceptance of Private Flood Insurance Options

On November 21, FHA published a final rule in the Federal Register to allow homeowners with FHA-insured mortgages to obtain flood insurance policies that meet FHA requirements from private insurance providers. Specifically, the Acceptance of Private Flood Insurance for FHA-Insured Mortgages final rule updates agency regulations to give borrowers the option to purchase a comparable private insurance policy that conforms to FHA requirements in lieu of a National Flood Insurance Program (NFIP) policy for FHA-insured mortgages secured by properties located in FEMA-designated special flood hazard areas (SFHAs). Previously, only flood insurance obtained through the NFIP was accepted. The final rule applies to all FHA-insured single family Title II mortgages, including home equity conversion mortgages, and loans insured under FHA Title I programs. Lenders should refer to Mortgagee Letter 2022-18 for guidance on implementing the final rule’s requirements, which are effective December 21.

Concurrently, HUD issued a press release stating that beginning December 21, “FHA will require lenders to provide detailed flood insurance coverage information when electronically submitting mortgages for FHA insurance on properties in SFHAs.” According to HUD, “[t]his data collection is an objective included in HUD’s Climate Action Plan and will allow FHA to capture and analyze flood insurance information on mortgages in its portfolio at a more granular level than has been possible previously.”

81% of Flood Insurance Policy Holders to See Rate Increases

81% of policyholders to see rate increases

by Bloomberg 26 Apr 2022

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by Leslie Kaufman

When the Federal Emergency Management Agency rolled out a major overhaul to its beleaguered National Flood Insurance Program last April, it promised that bigger, richer homes would bear the brunt of premium increases, while almost 90% of policyholders would see their costs stay stable or decrease.

But as the program goes into effect this month for existing policyholders, more than 80% of those homeowners are set to see rates climb and those gains will be spread largely evenly among rich and poor areas, according to a new report from the real estate firm Redfin. The report also found that “Majority-Hispanic” neighborhoods are more likely to see their flood-insurance premiums rise than any other major ethnic or racial neighborhood group, with 84% of policyholders facing increases.

The NFIP serves roughly 3.4 million single-family homes, most of which are in high-risk flood areas. The program was created in 1968 to cover homes that private insurers either didn’t want to cover or would only cover at a relatively high cost. The government offered more modest premiums, but the result is that over time the program has gone broke. It has more than $20 billion in debt, in part because of climate change-related phenomena such as rising sea levels and more storms. Those have led to more widespread flooding, causing more damage than the premiums could cover.

For years, FEMA tried to reform the program to make premiums more reflective of actual costs, but it was unpopular with Congress and constituents. Last year, FEMA rolled out a reform known as Risk Rating 2.0, based on cutting-edge science and modeling techniques.

The new program aims to be more equitable by setting rates based on the risk of individual homes, as opposed to the risk of all the homes in one risk zone as the old method did. The idea is the new system would charge higher premiums for the riskiest homes, while many of the other homes in the program would actually see lower premiums.  FEMA also said that rates would be no more that 18% per year and be capped at $12,000 total. It also said that mostly expensive homes would bear the brunt of the premium increases.

FEMA wouldn’t comment specifically on Redfin’s findings. “FEMA hasn’t provided any Risk Rating 2.0 premium information to outside entities, and any attempt to compare an outside entity’s premium estimates to Risk Rating 2.0 is simply speculation,” the agency wrote in an email.

Sheharyar Bokhari, a senior economist at Redfin who did the research for the report, acknowledged that FEMA didn’t release any individual home data, but said the agency is releasing zip-code level data on the share of policyholders that will see rate increases. Redfin analyzed this data along with census data on income and ethnicity in zip codes to derive its findings.

In Texas and Florida, about 90% of homeowners will be subject to increases, the analysis found. Premiums have been well below the national average in those states, despite the fact that they have experienced a disproportionate amount of devastating flooding from hurricanes. The increases will disproportionately affect zip codes with high Hispanic populations.

“That’s likely because Texas and Florida—the states hit hardest by FEMA’s overhaul—have the largest Hispanic populations behind California,” the report noted.

Redfin found that 76% of policyholders in neighborhoods with the highest earners are seeing premiums rise. That’s just below the national average, which is the 81% of policyholders overall who are about to see rate hikes.

One reason for the difference between Redfin’s finding and FEMA’s promises may be semantics. FEMA included people whose increase in premium payments will be $10 or less a month as part of its “stable group.”  But Bokhari said that the implications down the road, even for that group, could be substantial rather than “stable” because while FEMA can make rate hikes of only 18% a year, it can do that for up to 15 years or until a policy has reached $12,000. This is something that could really pinch less wealthy people over time, even if they aren’t paying the highest absolute amount in premiums, he said.

“Most policyholders probably won’t feel the burn of FEMA’s price hikes in year one, but by year five or 10, the elevated cost of flood insurance could impact where Americans decide to buy and build homes,” Bokhari said.

Another possibility, is that the FEMA rate hikes may backfire and cause people to cancel policies leaving them vulnerable to financial ruin from floods—essentially the opposite of what FEMA wanted. Only people in designated zones with federally-backed mortgages are required to have flood insurance. And so despite increasing flood risk, FEMA insures fewer people than it did in past years because premiums, while relatively modest, still rose every year for all homeowners regardless of risk and some people dropped coverage. The agency had roughly 3.4 million single-family-home policyholders in 2020, down from 3.8 million a decade earlier.

Since the pandemic, both Florida and Texas have seen populations surge. Many of these people are trying to escape higher tax states and may not be accounting for rising flood insurance costs.

“Some people may choose not to renew their flood insurance policies despite increasing flood risk due to climate change, especially as inflation drives prices up elsewhere in the economy as well,” Bokhari said.

Buying a Home in a Hurricane Zone: How to Assess Your Risk

https://www.bankrate.com/real-estate/buying-a-home-in-a-hurricane-zone-how-to-assess-your-risk/

Another week and yet another NFIP extension

Another week. Another NFIP extension.
It is a busy month for flood insurance. The NFIP was extended one week from 11/30/18 to 12/7/18, before yet another two week extension was passed through 12/21/18. This is the 8th such extension in 2018 alone. As Richard Andreano of Ballard Spahr so aptly put it, “Perhaps Congress is hoping that someone will come down the chimney and deliver a long-term, sensible reform of the Program.”    Do you still believe?

What it means for Brokers & Insureds
Danielle Ling of PropertyCasualty360 posted an article in the interim that summarizes the importance of such a reform for producers and insureds and why the Senate has delayed action.

But there is Good News from FEMA!

FEMA has made it easier than ever to move an insured from an NFIP policy to a private flood policy with better pricing and broader coverage like those available at lowestcostfloodinsurance.com. They once again return premium on mid-term cancellations of NFIP policies when replaced by a private market policy. And because our flood insurance policies are accepted by virtually all lenders, you can now easliy upgrade clients to the private market at any time

Lowestcostfloodinsurance.com Provides the Best Flood Insurance Solutions to the Industry

Homeowners picking up the pieces from Hurricane Michael will quickly learn an important lesson: not all hurricane-related damage is covered by home insurance.

Before making landfall Wednesday, Michael rapidly intensified to an extremely strong storm packing 155 mile-per-hour winds, just shy of Category 5 status. The storm ranked as the third-most intense hurricane to hit the continental United States, according to Accuweather, and was the strongest storm to ever hit the Florida Panhandle.

For homeowners, what precisely caused the damage to their home will prove important for insurance purposes, because coverage will depend on how the damage was caused. During a hurricane, if high winds cause roof damage that leads to significant water accumulation within the house, insurance will likely cover it. But if a nearby river crests because of the heavy rainfall and then causes flooding, the damage to homes will only be covered if the owners have flood insurance.

That’s why most homeowners in the path of September’s Hurricane Florence’s torrential rains would have been better off if their home had been hit by a wildfire or volcanic eruption — at least from an insurance perspective.

Damage caused by flooding isn’t covered by standard home insurance policies. Only homeowners who bought separate flood insurance for their homes were covered if water from Florence damaged their house. And there weren’t many people in that boat.

Most homeowners affected by Florence will be stuck footing the bill: CoreLogic also estimated that 85% of the losses to residential properties were uninsured. Before the storm hit, actuarial firm Milliman estimated that fewer than 10% of households in North Carolina had flood insurance.

A similar refrain could now play out because of Hurricane Michael. When Hurricane Irma struck Florida last year, only 14% of the 3.3 million households in the nine counties affected by the disaster had flood insurance coverage, according to data from Pew Charitable Trusts. That’s in spite of the fact that Florida households comprise 35% of policies under the National Flood Insurance Program.

Even when insurance does cover the damage from a certain catastrophe, deductibles are still at play. Hurricane deductibles vary from policy to policy, but are often assessed as a percentage of the home’s overall value.

Coverage for other disasters operates similarly. In volcanic eruptions, damage caused by lava flows or resulting fires is covered by a standard homeowner’s policy, but if the eruption causes seismic activity, homeowners will not be reimbursed unless they have purchased a separate earthquake policy.

The average annual premium for a policy through the National Flood Insurance Program was $878 as of April 2017. But flood insurance premiums can easily cost thousands of dollars in regions that are determined to be at the highest risk of flooding.

But flooding is just one type of natural disaster that isn’t covered by standard home insurance policies. And in the case of disasters like hurricanes, where damage can be caused by a variety of factors including wind, rain and storm surge, it can quickly get confusing—and frustrating— for homeowners who are trying to figure out whether their insurance policy covers certain damage.

What is covered under a standard homeowner’s insurance policy

Some natural disasters are always covered by homeowner’s insurance, including wildfires, tornadoes and hail storms. But other natural disasters are never or rarely covered under a standard homeowner’s insurance policy. They generally fall into two categories: floods and “earth movements.”

The first category comprises disasters caused by rising water, which includes everything from floods caused by extensive rainfall and hurricane-induced storm surges to dam failures and tsunamis. “Earth movements” include disasters such as earthquakes, landslides and sinkholes.

Unfortunately, many Americans are unaware that these disasters are not covered by a standard homeowner’s policy, according to the Insurance Information Institute.

The private market and government provide flood insurance

In the case of insurance for flooding, the federal government has stepped in. The National Flood Insurance Program was created in 1968 after insurance companies struggled to pay off claims following a slew of floods in the 1950s. Homeowners have the option to buy flood insurance through this program or to get a private insurance policy. In certain cases, homeowners may be required to purchase flood insurance by their mortgage lender if their home is located within a flood zone.

Private flood insurance now accounts for roughly 15% of all flood premiums nationwide, according to a March report from Insurance Journal. And for many homeowners, a policy from a private insurer rather than through the federal insurance program could be cheaper. A July 2017 briefing from Milliman found that private flood policies would have lower premiums for 77% of all single-family homes in Florida, 69% in Louisiana and 92% in Texas.

Low Cost Flood Insurance is Available Outside of Special Flood Hazard Areas

As everyone slowly recovers from Hurricane Florence, it is wonderful to see the city pulling together to help each other.

Many people made it safely through the hurricane itself only to be devastated a short time later by rising floodwaters. Others in the area were still dealing with the flooding loss due to Hurricane Matthew, when in blew Florence to overwhelm once again.

As we grapple with the cleanup and destruction from water damage, it brings up the question: Is flood insurance a good idea even if you don’t live in a flood zone? This type of insurance is often overlooked on a sunny Wildwood New Jersey day and as it is not part of a homeowner policy you must purchase it separately.

When asked about flood insurance right now, our first instinct might be a resounding “Sign me up," but under normal conditions, is the cost of adding flood insurance to your property a sound idea?

Water Damage Is Expensive

An article in the Huffington Post states that “... people tend to associate floods with a total loss, but the average flood claim for U.S. homeowners is about $39,000 ...”

As everyone’s budget and risk tolerance are different, you need to weigh the cost of flood insurance for your particular property against absorbing the possible cost of an average claim. Water damage is expensive if you consider the replacement cost of flooring, appliances and mold treatment. If you live in areas with a history of flooding, maybe your decision becomes even easier to make.

Federal Emergency Management Agency (FEMA)

A FEMA article concerning the facts and myths about flood insurance points out the following information about the National Flood Insurance Program (NFIP) in which many areas participate:

• Not all insurance agents are familiar with the ins and outs of flood insurance. It is best to talk to someone knowledgeable about NFIP and private flood insurance options.

• Contrary to some thinking, you can buy flood insurance even if you live in a low-risk zone and, since flooding is the number one natural disaster in the US, it might be a good idea.

• You can buy flood insurance at any time.

• Renters, condo owners, and businesses can all purchase flood insurance.

• Five inches of water can cause as little as $11,000 worth of damage.

Since FEMA can only step in after the area is declared a federal disaster, you may want to look into flood insurance long before a storm is on the horizon.

Flood insurance premiums can vary depending on the following aspects of a property: location and elevation, proximity to a floodplain, the age of the home, if it includes a basement, roof condition and more.

With so many things to consider, it is a good idea to weigh your options and get a second opinion, but ultimately to protect yourself. The decision is up to you and a good insurance broker can help you make the right decision.

The Future of Federal Flood Insurance

An unprecedented wave of destructive hurricanes has brought the long-struggling federal flood insurance program to the brink.

Now Congress faces tough questions about whether to again bail out the nearly 50-year-old program and how to implement reforms to make it more sustainable, secure and cost-effective

With five major hurricanes in recent weeks, insured damage has racked up estimated costs of $16 billion, adding to the $23 billion the program already owed to the Treasury Department for exceeding its borrowing limit.

The House authorized $16 billion in debt forgiveness Thursday as part of a disaster relief package, and the Senate is expected to follow suit. But the program will reach the end of its financial resources by the end of the month.

Even with debt relief and a short-term extension of the program, many say the flood program will not be self-sustainable without major reforms.

“I don’t think anyone would say the program is working well right now,” said Joel Scata, attorney with the Natural Resources Defense Council, an environmental advocacy group. “It needs to be reformed in a way that not only helps people recover from [a] flood but helps them get out of harm’s way.”

In 1968, Congress developed the program as a way to help homeowners in flood-prone areas that had been largely abandoned by the insurance industry due to the high risk. For private industry, a single hurricane as large as Irma, Harvey or Maria would be enough to wipe out a company.

Bob Hunter, who ran the flood program from 1974 to 1979, said it was originally designed only to protect existing structures that were left without coverage. The goal was to educate communities about safe building practices by identifying areas that were prone to flooding, he said.

“The stick was that communities would have to enact tough land-use and control housing,” said Hunter, who is now the director of insurance at the Consumer Federation of America.

Since then, the program has fallen off course, according to flood experts, insurance commissioners and lawmakers. The program fails to adequately update maps, making it harder to accurately determine flood risk in an area, and allows people to maintain artificially low premiums based on out-of-date risk predictions. The low premiums, experts suggest, could be encouraging people to rebuild in unsafe areas.

At the same time, lawmakers are struggling over how to keep premiums low enough to be affordable and maintain participation in the program while not putting too much of the cost on taxpayers.

“The program is totally failing, both in terms of getting safer building in the country and in terms of moving toward a self-sustaining insurance program,” Hunter said.

When Hurricane Katrina hit New Orleans in 2005, the program was not equipped to handle the quantity of claims and it was plunged into debt. In 2006 the Government Accountability Office put the NFIP on its “high-risk list,” meaning it predicted the program would not be able to repay the Treasury for money borrowed.

In 2012, Congress attempted to make the program more fiscally sustainable. The Biggert-Waters Act would have raised premiums to more accurately reflect flood risk and stop the “grandfathering” of subsidies, which allowed residents to keep policies with low premiums based on older risk estimates for their property.

Tropical Storm Sandy hit New Jersey a few months later and lawmakers abandoned those reforms as people complained of not being able to afford the new rates.

People “stormed Capitol Hill and said, ‘You can’t do that, I can’t afford that,’” said Burl Daniel, an insurance expert witness. If the program tried to remap areas and increase rates again, Daniel predicted “you’re going to have another march on Capitol Hill.”

Congress is now working to agree on new reforms before the program is up for reauthorization in December.

A rise in premiums could take the pressure off the federal government and taxpayers, advocates say, but opponents worry it will push people away from the program, leaving residents even more vulnerable to flood damage.

In a separate plea, some lawmakers are hoping to reduce the area that the flood program will insure to prevent the rebuilding of properties on unsafe, high-risk lands. The Natural Resources Defense Council, an environmental advocacy organization, found nearly 10% of damage from flooding comes from properties that have been damaged more than once, amounting to about $5.5 billion to repair so-called repetitive loss properties.

Office of Budget and Management Director Mick Mulvaney suggested in an Oct. 4 letter the flood program should not be able to sell insurance for properties on areas labeled as severe flood risk that are built after 2021.

Still others say the best solution is for the federal government to partner with the private insurance market to spread the risk between both parties. If private insurers have a stake in the losses, advocates say, they will want to raise premiums and consequently encourage communities to stop building on – and homeowners to stop buying – properties on high-risk land.

Critics worry that private insurers will “cherry pick” only the least at-risk properties to protect themselves, leaving the government to foot the bill for the most expensive risks.

But without a private market, taxpayers become the full insurer and “take the brunt of the hit,” said North Dakota Commissioner of Insurance Jon Godfread. “These [hurricanes] are massive hits going to” the flood program, he said. “I don’t think they can do it on their own at this point.”

Flood Insurance Legislation Promises Flexibility for Consumers

WASHINGTON (May, 2016) — Property owners who opt to purchase flood insurance in the private market rather than through the National Flood Insurance Program may do so under current rules, but they risk paying higher rates if they return to the NFIP. H.R. 2901, the "Flood Insurance Market Parity and Modernization Act," passed the U.S. House of Representatives today by a vote of 419-0 and seeks to alleviate that concern.

The National Association of Realtors® stands firmly behind the effort.

"Realtors® know that a robust National Flood Insurance Program is important for protecting consumers and ensuring property sales can move forward in 20,000 communities nationwide," said NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. "For many, the NFIP offers the only source of coverage that meets federally-related mortgage requirements and protects properties in the 100 year floodplain.

"At the same time, consumers who wish to purchase insurance in the private market should have the freedom to do so," he said. "This legislation will help foster a vibrant private flood insurance market while giving consumers the flexibility to return to the NFIP at a reasonable cost if they choose to."

Under current regulations, the NFIP requires homeowners to retain a minimum amount of flood insurance coverage to maintain the lowest rates available within the NFIP. Those same regulations treat consumers who move to private insurance as having had a "break" in coverage, even if the private insurance product offers comparable coverage for the property.

FEMA Announces NFIP Changes Effective April 1, 2016

 

On October 2, 2015, FEMA announced changes that the NFIP will implement effective April 1, 2016.  These changes are the result of continued implementation of the Homeowner Flood Insurance Affordability Act of 2014 and the Biggert-Waters Flood Insurance Reform Act of 2012.  Highlights of the changes include the following and apply to new insurance policies and renewals effective on or after April 1, 2016:

• Premium Increases and Surcharges: 
  • Pre-FIRM Subsidized Policies (AE and VE Zones)
    • Primary Residences:  Total increase of 5%
    • Non-Primary Residences:  Total increase of 21%

• V Zones (coastal high-velocity zones)
  •   Post-FIRM V Zones:  Total increase of 9%

• A Zones (non-velocity zones, primarily riverine zones)
  • Post-FIRM A1-A-30 and AE Zones:  Total increase 8%
  • AO, AH, AOB, and AHB Zones (shallow flooding zones):  Total increase 4%
  • Unnumbered A Zones (remote A Zones where elevations have not been determined):  Total increase 12%
  • A99 and AR Zones:  Total increase 4%

• X Zones (zones outside the Special Flood Hazard Area)
  • Standard-Rate Policies:  Total increase 3%
  • Preferred Risk Policies (policies on buildings currently mapped outside of the SFHA):  Total increase 4%
  • Policies for Properties Newly Mapped into a SFHA:  Total increase 4%

• Federal Policy Fees:
  • The federal policy fee is increasing from $22 to $25 for Preferred Risk Policies and from $45 to $50 for standard-rated policies.
  • Condominium building federal policy fees schedule:  1 unit - $50; 2-4 units - $150 per policy; 5-10 units - $400 per policy; 11-20 units - $800 per policy; 21 or more units - $2,000 per policy

• Rate Increase for Non-residential Business Properties of 25 Percent
  • Rate increase of 25% effective April 1, 2016.
  • Properties within the broader category of non-residential must be identified as business properties effective November 1, 2015.

• New Rating Methodology for Both Preferred Risk Policies and Property Newly Mapped in a SFHA
  • New tables for these two classes of policies will now display a base premium, which will be the combined building and contents premium exclusive of other fees.

• Elimination of Subsidy for Certain Pre-FIRM Policies that Lapse and are Reinstated
  • Effective April 1, 2016 and pursuant to HFIAA, FEMA will prohibit the use of Pre-FIRM subsidized rates for policies reinstating coverage for Pre-FIRM buildings that were previously insured by the NFIP where the NFIP coverage is reinstated by means of a payment received more than 90 days after expiration or cancellation of the policy.

• Clear Communication Standards
  • HFIAA Section 28 requires that FEMA clearly communicate full flood risk determinations to individual property owners, regardless of whether their premium rates are full-risk rates.  FEMA will be implementing ongoing changes to improve an understanding of the risk of flood damage and how flood insurance premiums do or do not correlate with that risk.

• Reformation of Coverage
  • Reformation of coverage upon discovery of a misrating applies only when a misrating is the result of the incorrect determination of the flood zone.
  • When a misrating is discovered after a loss, the prior policy term does not require reformation.  Only the current policy term requires reformation, effective to the beginning of the policy term.
  • When there is no loss in the current policy term, and the discovery of a misrating occurs within 60 days prior to prospective renewal, the correction will be made effective the date of the prospective renewal.

• Declaration Page Requirements
  • FEMA requires an insurance company’s National Association of Insurance Commissioners identification number and the Transaction Record Reporting and Processing plan reported number to be clearly labeled on the insurance policy declaration page.

The changes being implemented could result in premium increases for policyholders while directly impacting insurance producers when processing NFIP policies.  Please refer to more detailed information pertaining to these changes by clicking on FEMA Memorandum W-15046. 

Private Flood Insurance Is A Tremendous Option For Many Property Owners

Private market flood insurance is not only viable—it’s here now. Private policies are currently accepted by every major mortgage lender, almost every regional mortgage lender and almost all community banks. Many states have enacted changes to promote private flood insurance, and thousands of independent agents are already selling private flood policies. More insurers now insure billions of dollars of property. The door opened for the private flood market when Congress and FEMA’s NFIP lost the confidence of the general public as a result of the claims handling fiascos following Hurricane Katrina and Superstorm Sandy. Front-page headlines and negative publicity from skyrocketing premiums caused by Biggert-Waters didn’t help—in some areas of the country, real estate sales came to a near halt due solely to unaffordable flood insurance premiums. While subsequent legislation—namely the Homeowners Flood Insurance Affordability Act of 2014— rolled back some premium increases, the law currently in effect still requires FEMA to increase all premiums a minimum of 5% a year and up to 25% a year. Private flood markets question FEMA’s pricing. According to historical claims data through 2007, FEMA’s best loss ratios applied to newer properties built in the highest-risk V zones, while the worst loss ratios applied to FEMA’s lowest-cost Preferred Risk Policy. But it’s important to note that the private market is not ready to compete for all existing 5 million NFIP policies. Thousands of properties with multiple flood losses are categorized as severe repetitive loss properties. FEMA’s rates for these properties are only slightly higher than properties that have never incurred a flood claim. The private market has no motivation to offer a competitively priced alternative for this group.

 Congress has dictated high surcharges on FEMA’s pricing for commercial properties and secondary/ non-primary residential properties. These groups are attractive target markets for private insurers. Ironically, some of these non-primary residences are not second homes owned by the wealthy, but rather homes rented by families who cannot afford to purchase their own home. The additional cost of the surcharged flood insurance premiums for this group passes on in the form of increased rent. Private market opportunities exist for many more FEMA premiums that have doubled and tripled in cost in the past decade. In 2005, the NFIP premium for a $250,000 policy insuring a single family home built in 1974 with a basement cost $1,495. Today, that policy costs $3,410— or $4,922 if it is a non-primary residence. Congress is currently considering new legislation to make private flood insurance an even better alternative. The new law would make it even easier for all lenders to accept private insurance and demand that FEMA recognize private flood insurance the same as NFIP flood insurance when defining continuous coverage.
 

The United States Government Could Scrap Flood Insurance Program

Lawmakers and government officials are considering the possibility of overhauling the nation’s flood insurance distribution system, various news outlets are reporting.
Senator Kirsten Gillibrand of New York called to scrap the National Flood Insurance Program this week, due to allegations it underpaid and denied legitimate claims in the aftermath of Superstorm Sandy. That call was quickly echoed by other congressional democrats, including Senators Charles Schumer and Robert Menendez.
Lawmakers have not yet proposed an alternative to the system, however, saying they want to make sure Sandy victims are properly compensated before focusing on long-term reforms. There are currently 1,800 lawsuits filed by homeowners waiting to be settled, and FEMA is in the process of launching a process to reopen claims for the other 142,000 policyholders who were flooded in the 2012 storm.  Menendez did hint earlier this month that possible reforms could include a change in compensation for insurers servicing NFIP policies.
“They take 30 cents of every premium dollar to sell and service policies,” said Menendez, publicly questioning whether insurers earned their average $1 billion profits through the program. “Policyholders aren’t always getting their money’s worth.”
The National Flood Insurance Program currently sells government-backed policies to home and business owners through approximately 80 insurance carriers and their affiliated agents. It was established in 1968 when private insurers decided writing flood coverage was too financially risky and the government began offering policies at subsidized rates.  Today, the program is slowly increasing its pricing in order to bring rates up to an actuarial sound level. As it does so, private insurers are beginning to consider reentering the market.