After hurricanes Katrina and Rita hit the Gulf Coast, flood insurance became a big topic. It also continues to be a topic of high interest to most South Florida residents. 

 

The flood insurance lesson learned from these catastrophes is that the Congressionally required flood insurance system doesn’t function as well as we may have thought. Fewer individuals acquire obligatory flood insurance than would do so if the market were permitted to educate and persuade them to buy it. To better appreciate why so many households, including those in hurricane-prone areas, don’t have flood insurance, it’s essential to grasp how it works in the United States.

Keep reading to learn more.

More About How Flood Insurance Works

The Federal Emergency Management Agency (FEMA) defines flood zones depending on many variables, reducing the likelihood that property in the zone would be damaged by flooding. Whether or not federally subsidized flood insurance is necessary depends on whether or not the property is located in a flood zone.

>> A cautionary note that is worthwhile here is that many areas of the country traditionally not considered flood zones are now flooding prone due to climate change.

As part of the National Flood Insurance Program (NFIP), federally subsidized flood insurance is accessible. 

It is important to identify flood zones and understand what they mean for insurance purposes.

 

Flood Zones According to FEMA

Flood zone maps are available online.

Flood zones B, C, and X identify locations with Moderate to Low Risk.

The likelihood of flooding is often less than one percent each year.

The National Flood Insurance Program (NFIP) makes flood insurance “affordable” to households in these areas.

Zones A, AE, A1-A30, AH, AO, AR, and A99 are used to identify high-risk regions.

There is a greater than 1% annual probability of floods.

A 30-year mortgage will put you at risk of flooding by 26% over that time frame.

Mortgages in certain regions must include flood insurance as a condition of the loan.

Flood zones V, VE, and V1-V30, identified coastal areas as high risk.

About the same probability of flooding as A (High Risk) zones.

For mortgages in certain areas, flood insurance is required by law.

Zone D is when the danger is “undetermined.”

Almost all the coastal regions of Florida are classified as High Risk – Coastal Areas.

 

The “Obligatory” Nature of Flood Insurance

Understanding what “mandatory” means in terms of flood insurance requires taking a step back and looking at what Congress is and isn’t allowed to do under the U.S. constitution.

Buying flood insurance is not something that the federal government can legally require because of the constitution. It is unable to enforce building rules that would limit the type of construction allowed in flood zones.

 

It can, however, develop a program and make it available to local governments that enact and enforce flood zone construction rules. You may recall Congress’ threat to withdraw transportation money from states who failed to impose a 55- and then 65-mph speed limit as a result of this. The premise remains the same: Congress can get what it cannot lawfully demand by establishing a benefit and threatening to withhold it.

 

As a result, communities can ensure that new construction and existing buildings reduce flood risk.

 

The National Flood Insurance Program (NFIP) was started as a non-profit organization in 1968. In 1973, Congress “required” flood insurance in some regions (now flood zones) because of insufficient enrollment. We’re still wrapping our heads around what that implies. The number of those who took part remained disappointingly low.

 

Flood insurance reform was passed by Congress in 1994, maintaining the “mandatory” nature of flood insurance while establishing new, severe sanctions for nonparticipation, such as requiring that homeowners who have received assistance purchase flood insurance to be eligible for future assistance.

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