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What Is the National Flood Insurance Program (NFIP)?

When Hurricane Harvey struck Houston, reporters noted that it was hitting an area where about 80 percent of residents lacked flood insurance. The historic storm caused floodwaters to surge at 100-year highs, causing residents who never had to worry about flooding to do so.

One in five new homes built in the Houston area within a year after Harvey was constructed in the 100-year floodplain. With these facts in mind, it’s easy to say that flood insurance has become as important as ever for residents of Houston. For many residents, this means participating in the NFIP.

NFIP stands for the National Flood Insurance Program, which was created to help homeowners receive compensation for flood damages. As stated on the FEMA website, “The national flood insurance program aims to reduce the impact of flooding on private and public structures (…) by providing affordable insurance to property owners.”

Facts About Flood Insurance

According to FEMA, flooding happens in every region of the United States. In fact, FEMA warns that 90% of natural disasters in the United States involve flooding. This means that getting flood insurance for your home might be one of the most important forms of coverage you’ll need in the future.

According to the Insurance Information Institute, the following flood insurance facts are important:

  • Many homeowners and renters insurance policies do not cover flood insurance.
  • Most flood insurance policies are administered through the federal government. However, it’s still sold by private insurers.
  • Flood insurance should cover physical losses caused by unexpected surges of water accompanied by a severe storm.
  • There are two types of flood insurance coverages: insurance for structural damage and insurance for the contents of a home.
  • Maximum flood insurance coverage for homes is $250,000 for structural damage and $100,000 for the contents of a home. Some private insurers offer “excess” coverage for homeowners and renters who desire more coverage.
  • Commercial flood insurance has maximums of up to $500,000 for a building and $500,000 for its contents.
  • Automobile insurance policies have optional flood protection coverages drivers can select for their vehicles.

Types of NFIP Coverage

This affordable insurance comes in a variety of coverage types depending on the insurance a property owner wants. Claim amounts are adjusted according to the type of property owned, as well as applicable risk-factors (likelihood of flooding, age of the property, etc.)

In fact, some insurance types have a higher pay-out quota than others. Insurance owners who have properties considered at risk for “repetitive loss” represent 1% of the population who own flood insurance through NFIP, while representing 25% of NFIP's paid claims.

This means that if NFIP had only 100 insurance claims a year, 1 claim would be getting 25% of the available claim money, while 99 claims would receive the 75% left over.

Why Does the NFIP’s Debt Matter for the Insured?

From 2012 to 2016, the NFIP gained $3 billion in debt, pushing the NFIP debt total to $23 billion. If the program had not been granted debt forgiveness, it would have exceeded a total of $30 billion in debt. However, the senate voted to erase two-thirds of the NFIP debt in 2017, bringing the calculated total to $6 billion, not including damage from Harvey that was uncalculated at the time.

Hurricanes Harvey, Florence, and Michael demanded an unexpected number of claims from the NIFP in 2017. The program saw the second highest number of claims in its history. After a rough 2017, the program placed an additional $20.525 billion in debt to the U.S. Treasury. The program is projected to lose at least $1.4 billion a year. Additionally, a particularly severe 2020 hurricane season means that the NFIP’s debt is only likely to balloon further.

Why does NFIP debt matter? It’s simple—the less money the program has, the harder it might be for the insured to have their claims paid.

For example, of the 19,459 claims that were made during Hurricane Sandy, after 3 years, 11.5% of those claims were not paid.

When Did the NIFP Work?

The NIFP started providing affordable insurance coverage to the American market. It was created when private companies did provide flood insurance to at-risk communities. In 1968, the NIFP worked and filled a gap that homeowners needed.

Today, premiums that are supposed to pay for the program are unable to create a surplus. Additionally, the rapid expansion of housing across the floodplain has overwhelmed the aging NFIP. The expanding population has created an unbalanced and inaccurate model of risk assessment for the NFIP, and it needs to be fixed.

How to Fix the NIFP

Since 2008, the Government Accountability Office has made several recommendations to fix the NIFP. Reports have found a need to increase premiums to high-risk communities, limit coverage to already flooded areas, and require all properties at risk of flooding to have coverage.

Bills bringing these reforms have not been made into law because of their cost as well as resistance from special interest groups. The solution is a difficult one to pinpoint, and the program will likely only be fixed once the nation completely changes how it approaches flood insurance. For now, the NFIP is among the only sources of financial relief those in hurricane-prone areas can receive. While the system isn’t the best, it’s the only option for many property owners.

How Does Mold Affect NFIP Insurance?

Per FEMA, those who have NFIP insurance have the responsibility to “minimize growth and spread of mold as much as possible.” This means that if a policyholder does not do everything that he or she can to minimize the spread of mold within the house, NFIP will then no longer insure them for mold damage.

The NFIP does have a stipulation that homeowners are not responsible for mold in homes that are “impeded” by floodwater. However, the word “impeded” is very broad in usage.

Property Owners Will Not Be Compensated by NFIP for Additional Living Expenses

Homeowners who are relying on NFIP insurance must be aware that policyholders are personally responsible for any additional living expenses they may face due to a flood. This means that if a family needed to fly out to a friend’s house to have a roof over their head, NFIP insurance would not cover such an expenditure.

If a family were to go and sleep in a hotel while they waited for their property to drain, NFIP insurance will not cover such an expense. Say a family must rent a car to get to safety away from flood waters, NFIP would not cover the cost of the car. These expenses, and many others, are not covered by NFIP despite being costs that directly stem from flooding.

Are Settlements from an NFIP Policy Always Fair?

Many people assume that settlement offers from an NFIP policy are fair because the program is administered by the federal government. However, this is not always true. One significant criticism of the NFIP is the fact that FEMA allows many private insurance companies to handle policies for it. When a natural disaster occurs, FEMA pays the insurance companies to offset their costs. Notably, there is little oversight to this process and private insurers have been known to use FEMA payments to fight insurance claims in court. In other words, some companies and law firms use federal money to fight policyholders and turn a profit. During one case, an insurance company paid $29 million to fight NFIP policyholder claims.

If you’re making a claim for flood damage and are not being treated correctly, call Arnold & Itkin today. Our Hurricane Harvey attorneys have helped clients recover billions of dollars. We know the tactics that insurance companies use, and we’re ready to fight them. Our team never settles for less than a client deserves, and we refuse to back down for them because we know how much is at stake.

Call (888) 400-2101 for a free case evaluation concerning your flood claim. Arnold & Itkin is committed to giving you every option available to you! Call now to receive peace of mind concerning your NFIP claim.