Got Flood Insurance? Here’s What You Need to Know
by Kathleen Schaefer

Trivia question:
Who is the CEO of the nation’s largest single line insurance company?

Previous CEOs include Brock Long, Craig Fugate, and Michael Brown.

Peter T. Gaynor

Who is Peter T. Gaynor? He is the current Acting Administrator for FEMA. FEMA’s National Flood Insurance Program (NFIP) is the nation’s principal provider of flood insurance. The NFIP currently writes nearly 5.1 million flood insurance policies providing over $1.3 trillion in coverage. In doing so, it collects about $3.6 billion in annual premium revenue and has the distinction of being the nation’s largest single line insurance company.[1]
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National Flood Insurance Program, shortfalls and surpluses (by county).

Although Mr. Gaynor, like many of his predecessors before him, is a talent emergency manager. But one must ask: what could he possibly know about running the nation’s largest single line insurance company? It is one of the ironies of our National Flood Insurance Program. The NFIP is managed not by an experienced insurance professional but by an emergency manager who bows to the rate-setting authority of Congress. Is it any wonder that although Congress canceled $16 billion in debt, in 2018 the NFIP was $20.5 billion in debt.[2]

The NFIP is set to expire on September 30th

Since the end of FY 2017, the NFIP has been extended 12 times, and now it is set to expire on September 30, 2019.

While you may not think this impacts you, if you purchase your flood insurance from the same place as your fire insurance, you are buying an NFIP policy. This is part of a public, private partnership between FEMA and the insurance carriers known as the Write Your Own (WYO) program. The WYO Program allows participating property and casualty insurance companies to write and service the Standard Flood Insurance Policy in their name. The companies receive an expense allowance for policies written and claims processed while the federal government retains responsibility for underwriting losses. NFIP policies in-force will continue to be in force through a shutdown.[3]

What will happen if the NFIP is allowed to expire?

If the NFIP is allowed to expire, it will have a significant impact on housing sales. By law, property owners closing on a home in a Special Flood Hazard Area (SFHA) or a so-called 100-year flood zone, must purchase flood insurance as a condition for obtaining a federally backed mortgage (i.e., Freddie Mac, Fannie Mae). If NFIP flood insurance is not available, homebuyers may have difficulty closing their mortgage. Another impact of letting the NFIP expire is that the authority for the NFIP to borrow funds from the Treasury will be reduced from $30.425 billion to $ 1 billion. While we won’t see the impact, this could be significant for those on the East Coast who are trying to recover from Hurricane Dorian.[4]

What will happen if the NFIP is not allowed to expire?

If Congress acts, significant changes are proposed.

Part of the reason for so many short-term extensions is that the NFIP is badly in need of reform. However, gaining consensus on the reform measures has proven to be challenging. This year, under the diligent leadership of Maxine Waters, the House Financial Services Committee, by a bipartisan vote of 59 to 0 (yes, there really are things that Congress agrees on), approved H.R. 3167.5 It now waits for the House and the Senate to pass the bill. However, most in-the-know prognosticators believe that the Senate will not have time to take up the bill before the end of the congressional year. It will die. Congress will pass yet another short-term extension. And the legislative process will start anew next year.

If passed, in addition to reauthorizing the NFIP for five-years, H.R. 3167 contains several potentially significant changes that are of interest to San Rafael homeowners. It includes a “continuous coverage” provision that allows borrowers leaving the program to purchase private flood insurance to return to the NFIP without penalty. It raises the minimum loan amount that triggers the mandatory purchase requirement from $5,000 to $25,000. That means if you have your home paid off and you choose to take out a $24,000 line of credit, you will no longer be required to purchase flood insurance. It doubles the amount of Increased Cost of Compliance (ICC) coverage to $60,000.6 ICC coverage provides funds needed to cover the additional costs associated with meeting the state and local building codes, such as the need to install sprinklers. Lastly, it repeals surcharges currently assessed on policyholders.

It also creates a revolving loan fund for states to encourage mitigation efforts such as elevation or relocation. Whatever happens, the over 1800 San Rafael residents who currently pay over $2.5 million in NFIP flood insurance premiums to insure over one half-billion dollars in assets will be impacted.[7]

San Rafael is the 8th most flood-prone community in the Bay Area

Since 1980, San Rafael residents have paid in more than $37 million in National Flood Insurance(NFIP) premiums and have received less than $3.7 million in claims.[8] For California as a whole, since 1994, NFIP damage payouts total just 14 percent of premiums collected.[9] In examining the disparities, the Congressional Budget Service found that “33 counties with a shortfall of more than $10 million accounted for nearly 90 percent of the $2 billion total from all 823 counties with shortfalls.”

The figure above, copied from that same Congressional Budget Office Report, shows who pays and who receives.[10]

In order to counter these disparities, FEMA is implementing a new rating procedure called Risk Rating 2.0. Risk Rating 2.0 will fundamentally change the way FEMA rates a property’s flood risk and prices insurance. FEMA plans to announce the new flood insurance rates for single-family homes April 1, 2020 with the new rates to go into effect October 1, 2020.

One may look at the fact that San Rafael residents currently pay $2.5 million in annually in premiums and the fact that over the entire life of the program, residents have received less than $3.7 million in claims payments and deduce that with Risk Rating 2.0 premiums will go down. Perhaps they will. However, after factoring the high cost of rebuilding in the Bay Area and the higher than average overhead rate FEMA must charge, along with the fact that many homeowners are currently grandfathered into their existing rate, it is possible that rates will increase. At this point in the process, no one knows.[11]

My fellow researchers and I at UC Davis believe there is a better way. We believe that a state-led, community-based flood insurance program could provide unique opportunities for citizens to work together to implement measures that reduce flood risk, to provide information to rating agencies to more effectively price risk and to plan for the sea level rise anticipated to occur. The program could be framed along the lines of one proposed several years ago by researchers at Resources for the Future and the Wharton School of Business.12 H.R. 3167 includes a provision directing FEMA to conduct a voluntary community-based insurance pilot program.

Perhaps San Rafael could be the site of a pilot. Stay tuned.


Diane Horn of the Congressional Research Office has authored several reports on the status of the NFIP.






[6] Information from FEMA Open Source data.



[9] Congressional Budget Office, 2017, The National Flood Insurance Program: Financial Soundness and Affordability, Washington D.C., p. 14




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