The National Flood Insurance Program is drowning in a sea of debt and policymakers have been unable, or unwilling, to enact a long-term rescue of the program.
At the end of Fiscal Year 2022, the flood insurance program owed the federal treasury $20.5 billion.
“The NFIP is not built to handle this level of debt and its interest payments,” officials from the Federal Emergency Management Agency wrote in a report at the time. “FEMA will be unable to pay the debt as interest continues to consume revenue that would otherwise serve to grow the NFIP’s ability to pay claims to insured survivors.”
The NFIP’s main authorization legislation expired in 2017, and despite pleas from credit union and other financial trade groups, Congress has been unable to enact a long-term overhaul of the program. As a result, Congress has had to enact 27 short-term extensions of the program or risk having home sale closings grind to a halt. The latest extension expires on Feb. 2, when the short-term Continuing Resolution funding parts of the government is scheduled to expire.
In a series of reports issued last week, the Congressional Research Service provided details of the flood insurance program’s poor health. “FEMA has identified the need to increase flood insurance coverage across the nation as a major priority, with the recognition that neither the NFIP nor the private sector alone is likely to be able to write all of the policies needed to cover all of the flood risk in the United States,” the CRS said.
More than 22,000 communities in 56 states and other jurisdictions participate in the NFIP, with almost five million policies providing almost $1 trillion in coverage. The program collects about $4 billion in premium revenue each year.
For most of the NFIP’s history, the program was able to borrow small amounts from the Treasury to pay claims and repay the loans with interest, the CRS said. Following Hurricanes Katrina, Rita, and Wilma, Congress increased the NFIP’s borrowing level to $20.775 billion to pay claims. Congress increased the borrowing limit again following Hurricane Sandy to its current limit of $30.425 billion.
At the beginning of 2017, the NFIP owed the treasury $24.6 billion and in October of that year, Congress forgave $16 billion of NFIP debt.
“The NFIP’s debt is conceptually owed by current and future participants in the NFIP, as the insurance program itself owes the debt to the treasury and pays for accruing interest on that debt through the premium revenues of policyholders,” the CRS said.
Courtesy of David Baumann, Washington Credit Union Daily