National Flood Insurance Program braces for massive impact from claims
Hurricane Sandy has brought many issues to light in the U.S., especially those concerning climate change and the country’s energy grid. Amidst the turmoil the storm has caused, federal officials have begun evaluating ways to improve the country’s defenses against natural disasters. At its peak, Hurricane Sandy was a Category 2 storm, but dwindles to a Category 1 and tropical storm status by the time it reached the northeastern states. Despite the storm’s weakening presence, it still managed to produce widespread flooding, prompting federal officials to once again commit their attention to the National Flood Insurance Program.
Debt may prevent program from honoring claims
The National Flood Insurance program is the largest provider of flood insurance in the country. The majority of homeowners needing flood insurance coverage must obtain this coverage through the federal program. The program has proven so popular due to the lack of competition that exists from private insurance providers and the fact that it provides homeowners with affordable coverage. The premiums associated with the policies offered through the National Flood Insurance Program are not enough to cover the operational costs of the program, however, which is now $1.27 trillion in debt, according to FEMA.
Flood damage to be accounted for by federal program
Though the U.S. insurance industry is expected to be able to bear the costs associated with Hurricane Sandy, many of these insurers do not offer flood protection. The majority of the damage caused by the hurricane comes from the widespread flooding it produced. As such, the National Flood Insurance Program is expected to bear the vast majority of the costs associated with flood damage. These are costs that the program may not be able to account for. Currently, the program has a financial ceiling of $20 billion. If claims extend beyond that point, the National Flood Insurance Program will not be able to provide benefits.
Storm may provoke federal action
Lapses in coverage and claims processing have happened in the past with the National Flood Insurance Program. 2005’s Hurricane Katrina is the primary reason the federal program is in such a crippled state today, and many of the claims produced by that disaster were only recently processed, years after the fact. Hurricane Sandy may be forcing federal legislators to take a harder look at the program and find ways to ensure that consumers are not left out in the cold due to the program’s massive debt.