WASHINGTON – May 4, 2012 – The National Flood Insurance Program (NFIP) will charge homeowners more for coverage after Oct. 1, 2012. Officials say flood premiums will go up an average 5 percent nationwide, but they could rise as much as 20 percent in some areas while as other premiums go down. NFIP will also disallow rebates.
“People who receive the most subsidies in risky areas will see big premium increases, probably phased in,” Eli Lehrer, national director of the Center on Finance, Insurance and Real Estate at The Heartland Institute in Washington, told the South Florida Sun-Sentinel. “Rates have to go up. The real question is: Will the program be sustainable? It cannot continue at the rates it has now.”
The flood insurance program operates at a loss, and most experts agree it must generate more money to dig itself out of an $18 billion hole. However, a premium increase impacts Florida homeowners most. The state currently has 37 percent of all NFIP policies – 2.1 million out of 5.6 million.
Rebates
Since the federal government runs the national flood insurance program, insurers act more like middlemen between homeowners and NFIP. Currently, some insurers rebate part of their commission, allowed under state law, as a way to attract business. That practice must end on Oct. 1.
FEMA, however, says the national program is better served by an across-the-board premium policy that doesn’t favor one insurance agent over another. By banning commission rebates, the rule change will also effectively raise rates for some homeowners.
FEMA says that 48 states already ban rebates, calling them “an illegal inducement to purchase insurance.”
Potential changes
The U.S. Congress is also considering a long-term extension of the flood insurance program, which expires in its current form on May 31. In addition to extending the program, a law could change the way the program is administered. A bill passed in the House, for example, would put an individual homeowner’s policy premium more in line with actual risks for the area. The Senate has a different version of the bill, though, and nothing is assured.
Source: 2012 South Florida Sun-Sentinel, William E. Gibson, Washington Bureau
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