November 14, 2012 — In the wake of Hurricane Sandy, a late-season October storm that ravaged the East Coast, thousands of homeowners are seeking compensation for their flood damage from the federal government’s National Flood Insurance Program (NFIP).
Unfortunately, the program fell $18 billion into debt after Hurricane Katrina. With more than 115,000 claims already filed for Hurricane Sandy, and thousands more filed every day, experts estimate that the total cost could exceed $7 billion. However, the NFIP is only authorized to add $3 billion to its heavy debt.
The NFIP, established in 1968, is a federal government program that provides flood insurance for about 5.7 million homeowners who live in flood plains, along rivers, or coasts. Homeowners pay between about $600 to $3,000 a year, depending on the historical likelihood that their home will be flooded. About $3.5 billion is collected every year.
Unfortunately, in the last 8 years, costs incurred in 4 years have greatly exceeded revenue, sinking the NFIP deeply into debt. After Hurricane Katrina, the NFIP received an $18 billion taxpayer-funded bailout, which government officials admit will probably never be repaid. Simply covering interest on the loan costs up to $750 million per year.
Much of the problem is due to the fact that the majority of emergency funds go to rebuild houses built in flood-prone areas. For example, one house in Biloxi, Mississippi, valued at $183,000, cost the NFIP $1.47 million to rebuild 15 times in 10 years. Other coastal communities have resisted recommendations from the Army Corps of Engineers to build sand dunes on the beach, because it would obstruct their views.
The Federal Emergency Management Association (FEMA) could potentially increase premiums up to 25% in the next five years. They may also require homes that are more than 50% damaged to be built on stilts as a condition of being rebuilt in the same location.