WASHINGTON — The Federal Emergency Management Agency (FEMA) wants Realtors’ help in doubling the number of flood insurance policies nationwide to 10 million by 2023.
That’s according to Roy Wright, FEMA’s deputy associate administrator for insurance and mitigation, which oversees the National Flood Insurance Program.
Perhaps recognizing some myth-busting would help FEMA accomplish that goal, Wright stopped by the Regulatory Issues Forum of the National Association of Realtors Legislative Meetings and Trade Expo Tuesday to talk about one of NAR’s legislative priorities: congressional reauthorization of the NFIP (National Flood Insurance Program) before it expires September 30.
Here are seven myths the FEMA deputy cleared up:
Won’t FEMA disaster assistance cover homes? “This is an amazing misnomer. The Disaster Relief Fund is a fund that Congress puts dollars in every single year. It goes to fund destroyed public infrastructure. Very little of that money is made available to individuals,” Wright said.
According to Wright, before providing individual assistance, FEMA will ask: Do you have the ability to pay for this yourself? Could you get a loan to pay for this yourself?
“The average individual assistance for those who are eligible is $4,200. You may see that number get as high as $9,000. Max grants [of $33,000] don’t really happen,” he said.
“There is no more useful tool for recovery than flood insurance. With flood insurance, we rebuild the house.”
What the NFIP covers and does not cover. While the NFIP will cover the rebuilding of a house, it will not cover the land underneath it, according to Wright.
“We only indemnify the structure,” not the land, he said. That is part of the reason that NFIP policies carry a maximum payout of $250,000, even in luxury markets. Make sure lenders and insurance agents realize that they should be pricing policies against the structure’s value, not the total value of the property, Wright said.
“Don’t carry a max $250,000 policy on a $130,000 structure. You will have paid too much,” he said.
One Realtor from a coastal community told Wright that she could help him double flood insurance policies if it was true that payouts didn’t necessarily have to be for big disasters such as hurricanes and tornados.
“Absolutely,” Wright said. Most of the claims the NFIP program receives and pays are for localized flooding — if the structure next door floods, for instance.
“Most of our claims are paying for wet carpets,” he said.
Why NFIP reauthorization isn’t FEMA’s top priority in regards to flood insurance. “I assume reauthorization is your top priority. My top priority is delivering a better customer experience. That’s what my job is,” Wright said.
“How can reauthorization help us deliver a better product in a more effective and consistent way?”
After Hurricane Katrina and Hurricane Sandy — the two disasters that took the biggest hit out of the NFIP — FEMA changed some of its processes, allowing claimants to re-submit claims they believe weren’t evaluated correctly and dealing with claims electronically.
“We forgot we had customers. We had to change the way the claims were handled,” Wright said.
“We had to change the way that we understand the appeals process. The old process lacked credibility.”
Previously, claimants would have had to mail in their appeals and that paper would be irradiated and arrive six or seven weeks later, according to Wright. Now, claimants can submit their appeals electronically and there’s a person assigned to see the appeal all the way through, he said.
FEMA also changed the speed at which it disburses funds: When someone called to file their NFIP claim in the aftermath of the Baton Rouge floods, if the agency could see the claimant was in a high vulnerability area, it released the first $10,000 before an insurance adjuster even arrived, Wright said.
Those people needed money in their hands and “it was the right thing to do,” he said.
The NFIP product has also got to change, Wright said. “We’re still offering the same product we were offering in 1986.”
He’d like to see the NFIP offer options that other types of insurance offer, including offering coverage for basements, living expenses, and cost value rather than replacement value.
Why Congress might move fast on NFIP reauthorization. “We need a multiyear, on-time reauthorization. We really do. We need that kind of stability in the marketplace,” Wright said.
Communities representing 98 percent of the population — 22,235 in all — have chosen to join the NFIP, meaning they’ve assessed their risk and adopted floodplain management regulations.
“I think the House will move first in the next couple or three weeks. The Senate will follow. Congress works really fast on the day they decide to take up that issue,” Wright said, prompting some chuckles from conference attendees.
The NFIP is $24.6 billion in debt and its 5 million policies currently cover properties worth $1.2 trillion. “We’re in debt because that’s the way that Congress designed the program,” Wright said.
“We need greater transparency about our financial framework.”
He sees Congress moving toward more risk-based pricing for the NFIP, though he’s not sure what that would look like.
Why FEMA can’t order a lender to give up a flood insurance requirement, but might still be able to help. When there’s a problem with a flood map, homeowners and homebuyers look to their real estate agents. So when the map says a home is not in a special flood hazard area, but a lender still says flood insurance is required, what’s an agent to do?
“At the end of the day, the decision of whether insurance is required belongs solely to the lender,” Wright said.
“A letter from me doesn’t mean anything. FEMA has no legal relationship to lenders. We have no legal relationship to flood determination companies. They just use the data we provide them.”
FEMA reviews flood maps every five years and on average as many structures are designated out of flood-prone areas as go in, Wright said.
So agents can go onto the FEMA website and figure out quickly whether a property is in a special flood hazard zone and, if it is, if the home itself is in that zone. If it is not, homeowners can provide visual evidence — such as images from Google Earth — and apply for a Letter of Map Amendment to designate that home as “out as shown.” Applying is free, Wright said.
But he cautioned that any home close to a special flood hazard zone is at risk of flooding and the homeowner should buy flood insurance anyway — though its cost shouldn’t be the same as if the home were in the zone itself.
“That line matters because we need to make sure you’re paying at the right rate. Maybe instead of $1,200, you only need to pay $200 or $300,” he said.
Why not everyone that needs flood insurance has it. “We need more people to have flood insurance coverage in this nation, and when I say that, I understand that the private market needs to grow as well. I support that. I really do,” Wright said.
He believes the majority of the 5 million new flood insurance policies FEMA is aiming for over the next seven years will happen in the private market.
“We talked about insurance survivors, about how they recover more quickly and more fully,” Wright said.
“Today I have 5 million policy holders … but only about a third to one half of structures in a high hazard zone have a policy today.”
This could be because a home is owned free and clear and therefore without that lender requirement, or because it is renter-occupied, he said.
Realtors can play a “pivotal role” in translating the benefits of flood insurance, including its part in bringing a community back to life after a disaster, according to Wright.
“When all you get is three months of rental assistance … the value of everything falls,” he said.
“You all are some of the most trusted people in communities. How do we make sure that you have the right information in place so that not just at the point of sale, but in your role as leaders in the community [you] help advance this?” he added.
Why the math on flood insurance can change after a single disaster. One Realtor from Florida noted that his state had paid more in NFIP premiums than it had gotten back in assistance.
Wright said that numbers about premiums and payouts don’t factor in the cost of running the NFIP program, but regardless, any state could be one disaster away from reversing that trend.
“New York and New Jersey made the same assertion to me in the spring of 2012 and then Sandy happened. Now we’ve paid more in claims than premiums,” Wright said.
“Insurance is not a savings account. Florida hasn’t been hard-hit in 52 years. Statistically it should happen. Statistically there should be a direct hit on Miami. And when [there is], who’s going to pay? We are.
“It’s an insurance program and the fact that you haven’t had a payout, I would tell you that you’ve been fortunate. It takes just one big storm to hit and we will be in the opposite position.”