The National Flood Insurance Program, which incurred $18 billion in debt after Hurricane Katrina, is at risk of running out of money again as homeowners begin to rebuild following Hurricane Sandy.
Federal flood insurance is mandatory for homeowners that have a federally backed mortgage and live in an area prone to flooding. The average annual premium on such a policy is approximately $615, but homeowners in areas with a higher flood risk may pay anywhere from $1,200 to $3,000, depending on the level of coverage. While the federal flood insurance program accumulates $3.5 billion in annual premiums, coverage claims have overtaken this amount four times since 2005.
This summer, Congress altered the program to allow large increases in premiums paid by vacation home owners and those repeatedly hit by floods. As a result of this legislation, FEMA has the authority to raise premiums up to 25 percent per year over the next five years. These increases will primarily be imposed on vacation homes and other properties that repeatedly flood, but whose owners have paid below market insurance rates. Although critics seek even more drastic changes before allowing taxpayer dollars to bail out the program again, many politicians have already called for Congress to appropriate money to help Hurricane Sandy victims.