Considered a Blue Print of policy changes should Donald Trump again be president, the far right-leaning Heritage Foundations' Project 2025 would like to see the National Flood Insurance Program eliminated and replaced with costlier, private insurance.
To understand the potential magnitude of this, one has to go back and understand why the program was created in the first place — a storm named Betsy.
Hurricane Betsy was one of the deadliest and costliest storms in United States’ history. Betsy made two U.S. landfalls in early September, 1965; First in Key Largo and then days later in Louisiana.
Some 164,000 homes in just New Orleans were flooded after storm-surges of 10 feet spilled into the city. Flooding and other damage were estimated to $1.4 billion.
That was the first time a storm's destruction had reached a billion dollars. And thus the storm became known as Billon Dollar Betsy.
Billion Dollar Betsy came ashore when flood insurance didn’t yet exist; Enter the National Flood Insurance Program in 1968.
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- The Project 2025 Playbook
The program had two goals: Getting people insured with affordable policies. And keeping the program solvent. Turns out, those were competitive goals. And Congress has time and again had to bail out the program forgiving billions of dollars.
Now the creators of Project 2025 are calling to end the National Flood Insurance Program. There are roughly some 5 million policies across the United States. Should that happen, Mark Friedlander of the Insurance Information Institute predicts a catastrophe, especially in Florida.
"Florida has the largest volume of National Flood Insurance Program policies in the country. In fact, nearly half of all the policies written across the country are in Florida. So any changes to the program, including the potential elimination of the program that's being proposed, would have significant impacts on Florida homeowners," Friedlander said.
Private insurers now offer flood insurance, and in most cases the payouts from the private market can be significantly higher than federal payouts. But private is costlier most notably because national flood program offers steep discounts to policy holders in communities in good standing. The average is a discount of about 25% but can go as high as 45%.
"That's what's been debated in the past few months in southwest Florida communities about renewing that discount, because that discount gives homeowners significant savings on the cost of their flood insurance," Friedlander said. "And it's an incentive to continue to keep your flood insurance. Without that community discount program, the incentive is taken away. And that could be detrimental in terms of the number of Florida homeowners that just dropped coverage and don't have any flood insurance."
Phasing out and replacing federal insurance with private insurance is a weighty proposition especially for those struggling with the high cost of property insurance.
Friedlander had this to say: "Flood insurance is an additional coverage is not included in a property insurance. And in many cases, homeowners are required to have flood insurance."
In most cases, private insurers can’t match the federal rates for those looking for optional coverage.
And Friedlander, an industry expert who typically sides with market-based insurance rates, said switching to private may not be so simple because many private insurers tend have very stringent under-writing criteria. "It's up to their individual underwriting criteria where they offer it. it's clearly not available for everybody."
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