The National Flood Insurance Program, which offers homeowners in disaster-prone areas affordable flood insurance, now has 5.5 million policyholders insured up to $1.3 trillion, according to data from the Government Accountability Office.
But the situation for the program and flood-prone homeowners could be better, considering the NFIP program suffered major losses during catastrophic floods in the past decade.
With this in mind, GAO studied the likelihood of improving the program’s outcomes by expanding coverage limits.
The market has already seen changes on this front.
Homeowners with maximum coverage rose over the course of the past ten years, with the proportion of residential policies featuring the maximum building coverage level rising from 11% to 42% between the years 2002 and 2012, GAO says.
Gulf Coast regions and states along the East Coast saw the largest increases in residential policyholders carrying maximum coverage.
But there’s room for improvement – and increasing coverage limits may be the way to go, GAO says.
"Increasing coverage limits could increase the net revenue of the program and have varying effects on NFIP, the private insurance market, and consumers," the accountability office writes.
"Assuming that higher coverage limits had been in effect from 2002 through 2011, GAO's analysis suggests that NFIP still would have suffered losses during years with catastrophic floods, such as 2004 and 2005, but would have experienced net increases in revenue in other years."
Coverage increases can offset future losses, while helping parties avoid additional debt, GAO suggested. Then again, the adequacy of such a program also hinges on the rates charged.
The downside to expanding NFIP coverage is the creation of a situation that lessens private insurers' participation with consumers purchasing less private insurance, the oversight firm contends.
Yet, higher NFIP limits also could reduce participating insurers' risk exposure, giving more options to homeowners.
But there’s another side to this story. Rep. Maxine Waters, D-Calif., sent a letter to the head of the Federal Emergency Management Agency Wednesday, warning that impending rate increases for homeowners partaking in NFIP could push some of their rates up by as much as $28,000 a year.
Waters is most concerned about a bill that has already passed – the Biggert-Waters Flood Insurance Reform Act – which increased maximum coverage limits.
"While the law is intended to help the program become financially sound by moving policyholders to actuarial rates and phasing out some subsidies, we have recently become aware of an unintended consequence of this otherwise well-meaning legislation," Waters warns in her letter.
While Congress has yet to address the issue, Waters believes FEMA has the opportunity to tackle 'affordability issues' administratively.