The National Flood Insurance Program (NFIP) is a public-motivated initiative that started with an aim of reducing the impact of flooding on both public and private structures. The program is made possible by a provision of insurance that is affordable to owners of various properties by encouraging them to adopt and enforce regulations for floodplain management. These efforts help a lot in mitigating the effects of flooding not only on the newly constructed structures but also the improved ones. In general, the program helps in reducing the socio-economic impacts of disasters through the promotion of the purchase as well as retaining of the general risks of insurance, especially flood insurance. In this paper, the pros and cons of NFIP will be investigated.
There are many benefits enjoyed for participating in the NFIP. First, the development that complies with the minimum performance criteria of NFIP is less likely to have an experience gotten from significant damages (William 2012). Studies carried out have depicted that averagely, buildings that have met the NFIP criteria have sustained damage that is approximated to be 80 percent less than those that have not adhered to such guidelines. This is because NFIP design and its construction have requirements that are more stringent in zones that are V-shaped than those that are A- shaped so as to keep up with the increase floods, waves as well as erosion that is very hazardous(William,2012). Thus, buildings those are constructed to standards of minimum NFIP A- zone and are solely subjected to flooding that is shallow with no threats from waves that have broken as well erosion which will lead them to damages that are very minimal.
Lenders that are federally insured or the ones that are regulated have to make a requirement those improvements that are located in the areas of flood hazards to be protected against flood damages. If a community is noted as not participating in the NFIP, then lenders are required to notify their borrowers that the disaster assistance gotten from the federal for any damages brought about by floods will not be available to them. This will have to include grants as well as loans that could have been obtained (Michael 2011). These arrangements have reduced the effects of damaged when the anticipated risks occur.
Also, individuals that are insured against flood have a likelihood of having a significant advantage of obtaining financial support regarding loan facilities help the insured in repairing and rebuilding of their damaged buildings. The majority of those owning insurance of homeowners will explicitly have the exclude the damages obtained from floods thus the insurance programs that do not belong to the NFIP are very difficult to find. Also, it is a bit easier for most of the owners of the business as well as homes to get insured with NFIP as many private Companies do their underwriting and selling of policies for NFIP((William,2012)
Also, assistance from the federal disaster is always available for repairing or restoring of buildings for the public areas that are prone to floods if they are found to have been damaged by such a disaster. This is declared by the president of the United States (William, 2012)
NFIP provides financial protection. Such actions save an enormous amount of money for properties that are inundated with flood waters. It protects financially constructions that are found in hazardous areas and at the same time makes attempts of mitigating the risks that are expected to particular buildings. However, there is the need for a rational basis for determination standards of construction. Abandonment of programs for nourishment results progressively, in increased exposure to hazards of erosion for both new and old structures alike. Moreover, the funds received from NFIP in getting to make payments for claims for the damages caused by flooding ((Hobbs 2012).However, several challenges are facing the program.
Some constraints have been experienced in the implementation of the NFIP program. NFIP is not financially stable. Anderson (2004) argues that there is a need for the Congress to come up with appropriate ways of increasing the financial stability and also getting to have a limitation of exposure to taxpayers. The Congress was required to make a choice of protecting certain owners of different properties; they were also to provide appropriate authorization and fund some of the incentives as a way of increasing their transparency. Federal Environment Management Authority (FEMA) is required to take some actions that will be used in addressing some financial and operational issues that are threatening the financial stability of NFIP (Anderson, 2004)
The National Flood Insurance program has not managed to cover not in get all insurable properties. Buildings entirely constructed over water or basically below the ground, storage tanks for gasses and liquids, animals, roads, machinery, equipment located at the open are not subject to insurance products the organization is offering. Most of the contents, as well as materials that are found in the basement or even in the enclosures that are below the lowest level of an elevated floor or an elevated building that is constructed after a firm becomes effective are also not covered. Flood insurance is also not available for buildings that FEMA determines as declared by the local zoning authority of violating regulations set by the state in the management of floods. Newly Constructed buildings are also not eligible for insurance programs (Anderson, 2004). This discourages many individuals from being their potential clients thus impacting on the program negatively. To add on that, NFIP has not secured public trust as their insurance rates may not be an adequate reflection of the actual risks associated with flooding (Hobbs 2012). Hobbes suggested that incase property owners were to incur extra costs in locating of the areas that are prone to flooding; they will have done it more efficiently by coming up with more appropriate decisions. Studies carried out have come up with suggestions that the current rates being charged by the NFIP are estimated to be a third of the real risk of the market cost of the floods insurance. Rates need to be affordable because they need not to compete with the private ones that are subject to the regulatory requirements of insurance (Hobbes, 2004). It is thus critical for the management of the body work harder so as to foster trust in the potential clients.
In the recent times, many issues have been identified to be impairing the effectiveness of the program, including the reasonable of the payments of insurers of write-your-own(WYO), the adequacy belonging to the financial controls in the WYO program as well as that of the non -contractors of WYO. In the examination of management activities of FEMA of the NFIP program that is covering the areas that are involved in having strategic plans, the human capital planning as well as the intra-agencies in collaborations, many problems have been identified concerning the use of FEMA in the management of NFIP .For instance, FEMA made payments WYO insurers without considering the actual insurance expense information, failed to align its goals with the bonus structure of WYO program .Also ,there have failings in implementing adequate financial control mechanisms with the WYO program(Brown, United States, & United States, 2010)
In conclusion, there are many management issues that face NFIP that make financially unstable. Also, the program does not take part in insuring all the properties as the society expects them to do so. The people expected to be protected by the program do not have full trust on it because the program does not give an actual representation of the real risks that are associated with flooding. Notwithstanding the challenges, the program has registered good progress. Lenders federally insured can benefit from the program. Individuals insured under the program have an advantage of benefiting financially from the program when disasters strike. It also has assistance from the federal disasters that are always available for restoration of constructions. The management of the body must come up with better ways of solving their problems that are preventing the institution from adequately administering its mandate.
Anderson, D. R. (2004). The National Flood Insurance Program. Problems and Potential. The Journal of Risk and Insurance, 41(4), 579. doi:10.2307/251956
Brown, O. W., United States, & United States. (2010). National Flood Insurance Program: Continued actions needed to address financial and operational issues : testimony before the Committee on Banking, Housing and Urban Affairs, U.S. Senate. Washington, D.C.: U.S. Govt. Accountability Office.
Hobbs, C. H. (2012). The beach book: Science of the shore. New York: Columbia University Press.
Michel-Kerjan, E., Lemoyne de Forges, S., &Kunreuther, H. (2011). Policy Tenure Under the U.S. National Flood Insurance Program (NFIP). Risk Analysis, 32(4), 644-658. doi:10.1111/j.1539-6924.2011.01671.x
National Flood Insurance Program (U.S.). (2010). How the NFIP works. Washington, D.C.: National Flood Insurance Program, Federal Emergency Management Agency.
United States, & International Code Council. (2005). Reducing flood losses through the International Codes: Meeting the requirements of the National Flood Insurance Program. Washington, D.C.: Federal Emergency Management Agency.
Williams, O. M., United States, & United States. (2011). Flood insurance: Public policy goals provide a framework for reform : testimony before the Subcommittee on Insurance, Housing, and Community Opportunity, Committe on Financial Services, House of Representatives. Washington, D.C.: U.S. Govt. Accountability Office.
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