Mortgage California Blog

What You Should Know About Flood Insurance

February 17th, 2017

What's on tap for flood insurance? Potentially something smarter and safer

From the house with a sweeping ocean view to the neighborhood a mile from a creek that last flooded in the 1930s, you've had your share of deals that hung in the balance because of flood insurance. Federally mandated (and mortgage-company required), it incurs an up-front outlay at closing and then an ongoing premium payment that continues to rise - and depending upon the home's level of flood risk, those costs can be considerable.

The National Flood Insurance Program (NFIP), operated by the Federal Emergency Management Agency (FEMA), continues to be one of the most "kicked down the road" programs in Washington, as politicians and consumer groups wrestle with trying to minimize the impact on consumers while reducing the program's mind-boggling nearly $25 billion in debt to the U.S. Treasury Department.

The end of that road is in sight - this September, the program's authorization will expire. Of course, the program has hit similar milestones only to be re-authorized for two essential reasons: one, the government recognizes the need for a flood insurance program; two, the government can't pay back the debt on its own. Enter SmarterSafer, a national coalition of organizations, including insurers and environmental groups, dedicated to finding environmentally responsible, fiscally sound approaches to, among other things, reforming the National Flood Insurance Program.1

Finding a dry path to reform
Earlier this month, SmarterSafer presented recommendations that could both better protect and properly insure consumers while reducing the burden on an already financially underwater program. In its eleven-page proposal, the organization offered potential solutions ranging from better technical tools for determining and assessing regional and local flood risks to repairing damaged and protecting natural resources that help to mitigate the impact of flooding.

Most heartening to you truly music to your (and future buyers' ears) is their recommendation to open up participation in writing flood insurance policies to private sector providers, something that has been debated for years. Their assessment is that it will not only give consumers greater choice when selecting a policy, but encourage greater innovation in the types of policies offered and allow the NFIP to focus on the most heavily at-risk areas.2

The desire for reform is already there. Under the previous administration, the House of Representatives recognized the need for this kind of reform when it unanimously passed the bipartisan Flood Insurance Market Parity and Modernization Act - unfortunately, the Senate adjourned before it could also cast its vote.3 Whether the current edition of Congress under the new administration is or isn't similarly motivated remains to be seen.

Charting the current course
Until September arrives - or, by some rare alignment of the stars, the government acts on it before the 11th hour - your buyers looking at homes in designated flood zones must continue to weigh the benefits with the financial (and, of course, environmental) implications. Recommend that they get an estimate of their initial closing outlay and annual premium before placing a bid to ensure that they are still within their budget - it's better for them to sink a deal before it sails than find out too late that they can't stay afloat.


  2. "SmarterSafer National Flood Insurance Program Reform Proposal February 2017,",
  3. Ellis, Steve, "Private insurance competition could provide a lifeline to the National Flood Insurance Program," The Hill, February 9, 2017,

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