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Flood Insurance
Program
Participation in the National Flood Insurance Program is based on an agreement between local communities and the Federal Government which states if a community will adopt and enforce a flood plain management ordinance in a bid to reduce future flood risks to newly constructed buildings in Special Flood Hazard Areas also known as SFHA, the Federal Government will surely make flood insurance available within the community as a standard financial protection against losses due to floods. The Mitigation Division within the Federal Emergency Management Agency handles the management of the National Flood Insurance Program and oversees the flood plain management and the mapping of various components of the Program.
The intention behind this was to reduce damages due to floods in future by employing community flood plain management ordinances, and thereby provide protection to property owners against potential losses due to floods, through an insurance policy that calls for a premium to be paid for the protection offered. The NFIP is meant to be a self-supporting body, though in the year 2004 the Congress found that repeated loss of properties was costing the tax paper more than $200 million annually. The Congress had originally intended that the operating expenses and flood insurance claims would be paid for from the premiums collected for flood insurance policies. The National Flood Insurance Program borrows from the United States Treasury at times when losses are heavy, but these loans are paid back with interest to the treasury.
The program was amended by the Flood Insurance Reform Act that was passed in the year 2004, with the intention of reducing losses to properties for which repetitive flood insurance claim payments have been made.
Strangely, the National Flood Insurance Program seems to encourage people to locate in areas more susceptible to damage from flooding. Before the National Flood Insurance Program came into being, insurance coverage for losses due to floods was not provided by any private insurance providers. Hence, insurance losses stemming from flood damage were essentially the responsibility of the property owner, though the consequences were sometimes mitigated through some provisions for disaster aid. Today however, owners of property in flood plains frequently receive disaster aid and payment for insured losses, which in many ways contradict the original intent of the National Flood Insurance Program. Consequently, these policy decisions have given rise to an increasing amount of losses arising from floods in the recent years, both in terms of life and property.
Furthermore, certain provisions within the National Flood Insurance Program tend to increase the likelihood that properties in flood prone areas will be occupied by the people who are the least likely to be in a position to recover from any flood disasters that may occur, which in turn further increases the demand for aid. Certain factors that have been found to be contributing to an increased demand for aid are:
o Flood insurance covers only the losses incurred by the owner of the property, and subsequent claims are subject to caps which further increases the chances that the property will be occupied by renters and not the property owners themselves.
o Flood prone properties are more likely to be available for rental purposes because of the owner's increased risks and / or costs associated with occupying the property themselves and moreover, they also stand to earn from an otherwise lame real estate asset.
o Flood prone properties are also usually offered for rent at a discount, which attracts lower income groups, senior citizens and those with infirmities.
o Flood insurance for contents is available only to the property owner, which leads to uninsured losses for renters and in turn causes demands for aid.
o Flood insurance for properties that
are located in flood prone areas are mandatory only to secure loans, and
this makes it more likely that these flood prone properties will be owned
by senior citizens who have usually paid off their mortgage, or else by
investors who have acquired the property to generate rental income.