More homes and businesses In the U.S. are feeling the devastating impact of flooding, as was dramatically demonstrated in Colorado. But most households remain without flood insurance—and obtaining it may become more difficult.
Only 18 percent of Americans have any kind of flood insurance coverage. For those who might want it, the price is about to go up. That's because subsidies to policyholders for the federal government's flood insurance program—the National Flood Insurance Program, which is nearly the sole provider of flood insurance—are to phase out starting Oct. 1.
The rising premiums, along with continuing claim battles surrounding flood insurance, are ripe with confusion, said one analyst.
"The lack of any real competition for premiums and a less-than-transparent process by the federal government for administration of funds and policy guidelines will only add to the difficulties and confuse people," said Marc Roy, professor of disaster management at Tulane University.
"And the quality of work involved to get claims processed Is not good and also confusing," said Roy, a former chief of staff of the Federal Emergency Management Agency during President George W. Bush's administration. FEMA is administrator of the insurance program. Roy said that as a homeowner, he personally has outstanding claims for hurricane damage.
The program is hurting for cash after claim payouts from storms like Irene and Katrina. Its reported deficit is $28 billion. Last year's Hurricane Sandy alone cost the government more than $7 billion in paid losses.
As a result, Congress passed the Biggert-Waters Flood Insurance Reform Act in 2012. That act eliminates government subsides to some 20 percent of policyholders. In some cases, premiums could go as high as $20,000 a year.
"We need these reforms to move premiums to more economic soundness," said Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies, a trade group for the industry.
"Historically, prices for premiums have been too low, especially in high flood areas where they don't reflect the risk of flooding," he said.
It's not just the insurance industry—which functions as a servicer between policyholders and the government and receives some of the premiums—that sees a benefit to higher costs.
The Union of Concerned Scientists, a nonprofit group of citizens and scientists, wants premiums raised to reduce what it calls "risky patterns of land development."
"Subsidized insurance rates are only reinforcing risky development choices when it comes to building in flood areas," said Rachel Cleetus, the group's senior climate economist.
"Storms can cause enormous damage and most importantly, a loss of life. We need to make better choices going forward in where we build," she said.