Rain-worried homeowners can’t buy flood insurance

Iowans who might be rethinking the need for flood insurance because of this week's flash floods can't do much about it right now.

The National Flood Insurance Program isn't accepting new policies, because congressional authorization for the program expired on May 31. It was at least the second lapse in the program authorization this year.

Insurance companies cannot issue new flood insurance policies for loan closings on or after June 1 until the program is reauthorized, according to a bulletin from the Federal Emergency Management Agency, which oversees the program.

Homebuyers who take out a federally insured mortgage for property in a high-risk flood area are required by their lender to buy flood insurance.

The impact of the lapse on home sales in Cedar Rapids has so far been minimal, but it will get worse if the lapse continues, according to Russ Nading, president of the Cedar Rapids Area Association of Realtors.

“When I say minimal, it's not a minimal thing to anyone who's affected,” Nading said. “It's a major thing to them.”

Nading said he spoke about the situation about one month ago in Washington with U.S. Sen. Chuck Grassley, R-Iowa, U.S. Sen. Tom Harkin, D-Iowa, and U.S. Rep. Dave Loebsack, D-Iowa. they all seemed to support extending authorization for the program, Nading said.

“I don't know why they (Congress)  haven't acted,” Nading said.

FEMA says most of the 5.6 million flood insurance program policyholders will not be affected. Policies that are in force will remain in force. Claims under existing policies will continue to be paid. However, the program will be limited in its ability to increase coverage on existing policies, issue renewal policies, or issue new policies.

The Cedar Rapids area has been part of a pilot FEMA program to more aggressively market flood insurance, according to independent insurance agency Jeff Mark of Marion's United Insurance Agencies..

Mark said he's just glad that he doesn't have any clients who need flood insurance to close on a home purchase. Currently, he can only give them a quote on a policy subject to reauthorization of the federal program.

The government is “shooting itself in the foot” by allowing the flood insurance program to lapse when it still requires flood insurance for the issuance of certain mortgages in high-risk flood areas, Mark said.

Ruhl & Ruhl Realtors Client Relations Manager Mike Wendt said the most recent lapse in the flood insurance program has been “more dramatic than the ones in previous years.”

Wendt said the effect of the flood insurance lapse on clients differs with their circumstances. He said the closing of the real estate transaction in most cases is simply delayed  until the flood insurance program is renewed, but in other cases Ruhl & Ruhl helps the client find a way to work around the problem by using a different lender, using private flood insurance, or other means.

“I would be lying if  I didn't say that occasionally a deal falls apart because of it,” he said.

The authorization lapse convinced State Farm Fire & Casualty Co. last week to announce that it will stop servicing National Flood Insurance Program policies, although it will continue to sell them.

State Farm said that there have been 11 last-minute reauthorizations of the program since 2002, and on four occasions the the program was allowed to lapse for extended periods.

“These “stop/start” situations require a large company like State Farm to dedicate significant resources to address challenges and coordinate numerous communications with customers, employees and its more than 17,000 agents,” a State Farm statement said.

State Farm said it will be transferring its customers' flood policies to NFIP Direct, a program established by FEMA for direct servicing.  State Farm agents will continue to sell coverage through  the NFIP Direct program.

NFIP Direct is a program established by FEMA for direct servicing of flood insurance policies.