National Flood Insurance Program may be ready for a bailout

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Flood Insurance Program in DebtFEMA weighs bailout option for National Flood Insurance Program

Though Hurricane Sandy has passed, the Federal Emergency Management Agency (FEMA) is still in the throes of managing the impact of the natural disaster. One of the most significant problems facing the industry in the wake of the powerful storm is the damage it has done through flooding. Floods fall squarely in the realm of the National Flood Insurance Program, a federal insurance provider that accounts for the vast majority of the country’s flood insurance policies. FEMA may be pressured to take drastic action on the program in the coming weeks.

Federal program crippled by debt

The National Flood Insurance Program is already under major financial pressure because of its ongoing debt, which comes in at approximately $1 trillion. Much of this debt was accrued in the wake of Hurricane Katrina in 2005. The storm caused widespread floods that produced several thousand claims. Because the federal program offers insurance coverage well below what the national average would be from private insurers, it has had difficulty recovering from the financial impact of the storm.

Bailout option may ensure claims can be paid

FEMA officials suggest that the flood damage caused by Hurricane Sandy could be as much as four times greater than the National Flood Insurance Program ‘s capacity. This would create a very trouble situation for the program itself, as well as the homeowners its provides coverage to. Now, FEMA is weighing the option of seeking a federal bailout for the program, which would ensure that claims can be paid on time, but could plummet the program further into debt.

Bailout likely to send program deeper into debt

A bailout option is extreme, but may be the only course of action FEMA has left. A reform package signed into law earlier this year concerning the National Flood Insurance Program was expected to address some of the issues the program has. The changes this package is meant to introduce do not take effect for several years, thus rendering the package mostly benign at this time.

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