The Mortgage Bankers Association (MBA) on Thursday sent a letter to leaders of the U.S. Senate Committee on Banking, Housing and Urban Affairs to address the availability of flood insurance.
In the letter, MBA SVP of Legislative and Political Affairs Bill Killmer pointed to the impending expiration of the National Flood Insurance Program (NFIP), which is currently slated to happen on September 30. Kilmer argued that a long-term reauthorization of the NFIP is essential.
“New NFIP policies cannot be issued during a lapse in authorization. Existing policies that are set to expire can only be renewed if the application is received prior to the lapse and the premium is received within the 30-day grace period,” Killmer said. “Otherwise, policies will not be renewed until the NFIP is reauthorized.”
The impending expiration of NFIP represents an “imminent threat” for homeowners, especially during a season that has seen an increasing cadence of extreme weather events, most recently in the form of a hurricane that has hit the state of Florida.
“[A] long-term authorization is vital to provide needed certainty to homeowners and small businesses that depend on the program for flood damage protection, to protect our residential and commercial real estate markets and to provide stability for the companies and agents that sell and administer the NFIP policies to millions of consumers across the country,” he said.
Killmer also addressed concerns about both the costs and shrinking availability of private flood insurance policies, particularly in Florida and California.
“MBA members are very concerned that private property insurance has reached a point of critical market dislocation,” the letter said. “Many insurers and re-insurers have withdrawn from states like California, Florida, Texas, and Louisiana as climate change brings greater severity in weather events and property loss.”
Some jurisdictions are also limited by regulation to increase premiums to match the increasing levels of risk, MBA said.
“Western United States wildfires are driving a potential insurance crisis for many property owners, and recent studies indicate that decreased insurance availability and affordability may already be affecting the housing market in wildfire-exposed areas.”
At the same time, increased levels of risk coupled with certain companies retracting coverage availability or canceling policies are creating serious issues related to both affordability and availability of private flood insurance.
“Insurance companies have significantly raised premiums (to the extent permitted) to price for increased risk and surging property replacement costs,” he said. “Commercial property premiums increased 20.4% in the first quarter of 2023, the largest increase in 20 years, and the 22nd consecutive quarter with premium increases, mainly due to catastrophic insurance premiums.”
Heightened premiums, in many cases, are still not enough to stem “significant financial loss” for insurance companies, the letter added, leading to more regular instances of “force-placing” insurance that protects the lender and not the borrower in instances where coverage is simply denied for insurance reasons.
Reforming FHA’s multifamily program by keeping these challenges in mind will be an important step, Killmer said.
“The FHA-Insured Multifamily Program must also be reformed to align with the present realities of insurance markets,” the letter said. “Wind and Named Storm insurance coverage is justifiably a requirement for FHA Property General Liability insurance policies in specific areas and states. However, this coverage is difficult to place in the insurance market due to a lack of availability.”
