Will Record Flood Losses Save or Drown Flood Insurance?

Written by: Steve Cook   Wed, December 14, 2011 Beyond Today’s News, Crisis Programs, Housing Crisis

Just as Congress approaches a drop dead deadline Friday on whether or not to continue the nation’s flood insurance program, a new report details the cost and extent of one of worst year for floods in recent history.

CoreLogic estimates flood losses in the U.S. this year at approximately $10.67 billion, three times the amount forecast for next year, based on various flooding and storm events recorded in the National Climate Data Center.

The melting of an above-average snowpack across the northern Rocky Mountains, combined with abnormally high precipitation, caused the Missouri and Souris rivers to swell beyond their banks across the upper Midwest. Record-breaking rainfall in the Ohio valley in the spring and summer, combined with melting snowpack, resulted in historical flooding along the Mississippi River and its tributaries.

As Congress grapples with extending the life of the current program, CoreLogic suggests that flood insurance coverage to be expanded to protect more territory. The floods of 2011 heightened awareness of the flood risk outside of the FEMA 100-year flood zones, the report states. There has also been an emphasized need to raise current flood protection standards for the critical and strategic infrastructures in the U.S.

Based on the trend pattern, 2012 should not be an extreme flood year – in fact, there should be several more years before the next extreme flood loss year. U.S. flood loss in 2012 is projected at approximately $3.53 billion.

“The natural disasters felt throughout the country this year will undoubtedly shape the nation’s response to these events in 2012,” said Dr. Howard Botts, executive vice president and director of database development for CoreLogic Spatial Solutions. “The catastrophes we experienced as a nation have already impacted and will continue to impact the policies, procedures and safety measures in place for many homes and businesses. The year 2011 was a year that informed the general understanding of risk and, hopefully, will lead to improved preparedness for years to come.”

Even as the $10 billion bill for 2011 was reported, the future of flood insurance remains up in the air after a debate Congress that began in September. Earlier this fall lawmakers extended the program temporarily to December 16 after the previous federal program expired in September. A September 2009 report by the Government Accountability found that the government overseers had no way of knowing how much profit their insurance partners were making and whether the amounts were appropriate. Last summer members of Congress recommended a complete repeal or overhaul because the program was more than $18 billion in debt; it has yet to recover from claims following Hurricane Katrina.

On December 4, the Senate passed a five year extension of the current program that includes reforms like higher risk-based premiums and private market involvement. Now the House must act and the President must sign the extension into law by midnight Friday or homeowners living in flood zones will not be able to buy or sell their homes.

Before the federal program was launched in 1968, few private carriers provided flood insurance because of the cost and destructive power of floods. Under the program, homeowners in FEMA flood zones are required to buy policies from insurance companies — about 90 provide it — and the government pays for flood damage with federal funds collected largely from homeowner premiums.

This year’s big losses could drive the program further into the red, or it could underscore the need to continue and possibly expand the program to protect property that does not qualify for coverage today.

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