Flood Fix Proposed
In January, 2014 Assemblyman Phil Goldfeder first proposed the idea of creating a New York State flood insurance program. Now, he’s moving to get it launched.
His initiative could have enormous ramifications.
Some background: After the crippling rate increases triggered by the Biggert-Waters Act were revealed in the winter of 2013, lawmakers on the Federal side went to work to repeal and amend the law that would have wiped out entire communities. The Homeowners Flood Insurance Affordability Act was born which halted many of the extreme conditions of Biggert-Waters. But many burdensome aspects persist.
Flood insurance still falls under FEMA and its National Flood Insurance Program (NFIP). To many, that spells trouble and continued uncertainty. Critics say FEMA is, among many things, a bureaucratic mess built to waste money, issue erroneous flood maps, and overcharge on premiums.
As it is, homeowners have little choice but to deal with the NFIP. Although
owners without a mortgage can opt not to have flood insurance, most owners and new buyers do have bank mortgages and the banks insist on owners carrying flood insurance.
The issue extends beyond homeowners and affects communities across the country. Uncertainty, itself, casts a shadow on real estate markets which causes ripple effects. Without clarity, real estate markets freeze or suffer. In such cases, buyers remain on the sidelines or look in areas that are not in flood zones. When home values slide, people spend less, businesses suffer or fail, leading to overall neighborhood instability.
FEMA has done little to allay fears or present clearly defined premiums. Although all flood policies are under the auspices of the NFIP they are purchased through private insurance agents or companies. The rates offered can vary widely. One feature of the Homeowners Affordability Act was an annual limit of 18% on policies. Many homeowners have seen increases well beyond that and been told that fees and surcharges and other rules effectively nullify the 18% limit.
Frustration extends beyond homeowners. Local insurance agents have difficulty with underwriters and FEMA. “You get a different answer every day,” one said.
And it’s not just flood insurance premiums that cause alarm. It’s FEMA itself.
Court records and recent news reports reveal that insurance companies denied the flood insurance claims of thousands of homeowners because of fraudulently altered engineering reports done after Sandy. What does FEMA have to do with that? Well, these insurers have incentive to please FEMA. These companies don’t go in pocket to pay claims; the NFIP (run by FEMA) pays. The insurance companies face no risk at all. They get commissions and a cut of the premiums.
In fact, all major insurance associations praised the Biggert-Waters Act in 2012. And why not? The insurers would have been in line to receive cuts of much larger premiums and still face zero risk.
Plainly, these insurers have incentive to keep the NFIP happy. Investigations are now underway to find out if these doctored engineer reports were a direct result of NFIP pressure. A lawyer, suing NFIP, said one company committing fraud would be one thing, but when several engage in the same fraud you must ask if there is a common denominator.
Groups, such as Stop FEMA Now, have organized to pressure elected officials to fix the National Flood Insurance Program which will need congressional reauthorization in 2017. In short, the program needs to be funded by Congress. Lawmakers are being urged to fix before funding.
Phil Goldfeder is not waiting for the feds. He wants New York State to offer flood insurance and is introducing legislation to create the New York Flood Insurance Association (NYFIA), a joint underwriting association designed to serve New York State homeowners in flood-prone communities.
Goldfeder’s proposal is a potential game-changer with national implications. It is, however, sure to be a long, arduous journey before it’s realized. With such enormous money in play, there will likely be numerous parties interested in steering the legislation. Goldfeder acknowledges the challenges but cites precedent as a reason to be hopeful.
When announcing his proposal on Sunday, Goldfeder said New York State has already demonstrated the way. After numerous riots in the 1960’s, insurers began refusing to write insurance policies because so many fires were destroying inner-city properties. In response, the New York Property Insurance Underwriters Association was born. This State-run entity created a program in which private companies provided fire insurance to any insurable risk regardless of location. In the case of high risk, joint underwriting associations were formed to provide coverage. The program soon became a model for public-private insurance programs in 29 other states.
Goldfeder sees flooding as a risk similar to the fires of the 1960s. And whereas urban riots did not occur in every state, it is a fact that every state has flood zones.
In addition to the precedent set by New York State in 1968, Goldfeder said Florida, in response to homeowners having difficulty obtaining insurance after Hurricane Andrew created the Citizens Property Insurance Corporation as a joint underwriting association to expand insurance policy options. Goldfeder said he has been corresponding with Florida officials to determine which aspects of the Florida program might work in New York.
In the meantime, Goldfeder, who was recently appointed to the New York State Assembly Committee on Insurance, proposes New York State create the New York Flood Insurance Association “as a choice for consumers when flood insurance is unaffordable or difficult to obtain.” Under the proposed law, the Association’s membership would be comprised of State-approved insurers and would be governed by the Superintendent of the State Department of Financial Services and a board of 13 directors.
Association members would have to follow a plan of operation requiring them to provide “economical, fair and non-discriminatory” flood coverage to policyholders and follow “reasonable and objective” underwriting standards. Any homeowner or renter who has made a reasonable effort to find coverage on the private market could be eligible to apply to the Association for coverage of up to $1.5 million for property and contents.
Goldfeder said he needs buy-in on the city, state, and federal level and has begun contacting representatives to push the proposal forward. As a start, both City Hall and Senator Schumer’s office issued supportive statements.
When asked who might oppose such legislation, Goldfeder said, “We’ll see. But if insurance companies want to do business in New York they’ve got to share the risk.”
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