By Collin O’Mara and Sara Calo
A surge of destructive flooding has made the need for flood insurance in Ohio greater than it has ever been. With each passing year, flooding takes its toll on local communities, destroying homes and wildlife habitats throughout the state. Amazingly, Ohio residents essentially have only one option for getting flood insurance coverage.
Throughout the state, a majority of home and business owners have been forced to rely on the National Flood Insurance Program (NFIP) for their flood coverage because it has been the only option to meet mandatory purchase requirements.
In some states, however, private insurers are offering better coverage at lower rates than the NFIP because of statewide regulations to loosen restrictions on the marketplace. Since Ohio has not made such changes, private coverage can be purchased from out-of-state providers, but it is often not accepted by financial institutions issuing mortgages because it is not federally backed.
This system is long overdue for an update, so Congress must act to level the playing field and address outdated and arcane regulations so that people across the state and country can have equal access private coverage if they choose. The status quo is unsustainable. Since premiums remain heavily subsidized and haven’t kept up with the risk of inflation, the NFIP’s overall debt has reached approximately $23 billion.
The Flood Insurance Market Parity and Modernization Act (HR 2901), which unanimously passed the U.S. House of Representatives in April, would level the playing field for private insurers to enter the marketplace by clarifying that private policies can be used to meet the federal mandatory purchase requirements.
Competition is a vital part of any industry, and flood insurance is no exception. The presence of private insurers in the flood insurance marketplace will lead to more options, better prices and greater efficiencies for hundreds if not thousands of communities across the country. Ohio residents would finally be able to choose the flood coverage that works best for them instead of being restricted to the one-size-fits-all policies of the NFIP.
Private insurers would also have more flexibility than a government-run program to provide additional coverages and price policies more accurately based on a property’s exposure to flooding. This would lead to lower rates for many policyholders as well as discourage risky development in regions that experience frequent floods. In fact, current insurers writing private flood coverage are already targeting high-risk zones to offer better coverage at a lower rate.
Just as importantly, HR 2901 would bring some desperately needed relief to the NFIP, which has struggled to remain solvent after major payouts from Hurricanes Katrina and Sandy. A 2015 GAO report found that at its current pace, the federal flood-insurance program, which is managed by the Federal Emergency Management Agency, would be unable to repay its debt within a reasonable time frame, if ever.
To avoid additional expensive taxpayer bailouts, it is necessary for the NFIP to reduce its exposure to risk by sharing some of the burden with other insurers. Reducing its risk would enable the NFIP to better serve policyholders and ensure that the program will still be around for future generations.
Ohio’s leaders have recognized the state’s susceptibility to flooding: Eighty-six of the state’s 88 counties voluntarily participate in the NFIP to manage their floodplains.
According to FEMA, from October 2014 to September 2015, the NFIP paid out more than $7 million in claims to Ohio policyholders. Though that number is significant, states such as Florida, Texas and Alabama raked in $50 million to $115 million each.
The threat from floods will only get worse in the coming years, making it imperative to give Ohio consumers access to flood insurance – whether it’s from the NFIP or the private market – so they can bounce back quickly in the wake of a storm.
The development of a private flood insurance marketplace is one of several reforms that would strengthen the NFIP and ensure its viability. In 2017, the program needs to be reauthorized and reformed, so Congress must act to avoid another series of short-term extensions and shutdowns that will only create uncertainty in real estate and related markets.
The federal government also needs to make resiliency and mitigation efforts a greater priority, both within and outside of the NFIP. Strengthening infrastructure and helping homeowners take preventative measures will minimize the damage when storms hit and reduce the costs of post-disaster recovery.
Communities can also invest in natural systems that restore the local ecology and help reduce flooding risks long-term. By restoring natural watersheds and other wildlife habitats that act as natural flood barriers, communities will have more of a buffer for future flooding and increased wildlife habitats nearby during the times of year when floods don’t threaten Ohioans.
Another mitigation measure that would give consumers a clear picture of their vulnerability to flooding is updating flood maps using modern technology. Accurate maps would also ensure that flood insurance rates reflect the true risk that a property faces and require fewer homeowners to file expensive appeals.
As the country braces for the rest of this year’s hurricane season, the U.S. Senate needs to pass this common-sense and much-needed legislation to bring better flood coverage to Ohio residents and protect taxpayers from taking on the NFIP’s crushing debt.
This article was previously published by The Plain Dealer. Click here to view.