Mortgage and Flood Insurance Markets: ‘Tossing Life Preservers into Floodwaters’

With the 2018 hurricane season kicking into gear–and with residual effects of 2017’s devastating hurricanes in Texas, Florida and Puerto Rico still evident–flood insurance is very much on the minds of mortgage lenders and servicers. And with the National Flood Insurance Program set to expire (again) on July 31, the real estate finance industry is clamoring for action on Capitol Hill.

Just this past week, the Mortgage Bankers Association and other industry trade groups sent a letter to Capitol Hill lawmakers, calling for a long-term extension of the NFIP (preferably at least five years), along with an exemption for commercial and multifamily properties from the program’s mandatory purchase requirements; and development of a more robust private flood insurance market.

MBA followed that up later in the week with a Call to Action through its grassroots advocacy arm, the Mortgage Action Alliance (, urging its members to contact their members of Congress and ask them to reauthorize the NFIP.

“If the NFIP program is not reauthorized before the deadline, sales of properties across the nation could well face delays or cancellations,” said MBA Senior Vice President of Legislative and Political Affairs Bill Killmer.

But the issue goes well beyond NFIP reauthorization. In a new paper, Tossing Life Preservers into Floodwaters: Next Steps for the Mortgage and Flood Insurance Markets, Melissa Klimkiewicz of Buckley Sandler LLP and Pete Maloney and John Dickson of Aon Risk Solutions warn that insurance is only one part of the flood solution–but it is a glaringly absent one.

The authors noted as hurricane seasons go, 2017’s stands as the most expensive in U.S. history. Yet the storms that hit the Florida Keys and Puerto Rico were not unprecedented, they said, given the long break since the Katrina, Rita and Wilma landfalls of 2004-2005, there was some sense that hurricanes Irma and Maria were overdue. While the housing and insurance industry largely took them in stride as significant, but expected, wind events, they said Hurricane Harvey was different.

“One of the tougher questions that Hurricane Harvey posed was why only 15 percent of homes in a major city [Houston] identified as a huge flood risk were protected by flood insurance,” the authors said. “While some have posited that the answer can be chalked up to imprudent consumer choice, at its core, the issue is far more complex. The dearth of residential flood insurance for Harvey–as well as any other significant U.S. flood event–arises because of a range of factors including national policy choices, a system of subsidization in some areas but not others, limited consumer education, and an insurance mandate that commands heavy and sometimes painful attention to one side of an imaginary line with limited attention to the other side of that line.”

That gap needs to close, the authors said, “particularly because no one is questioning anymore whether sea levels are rising or whether deluges occur more often. The answer in both cases is clearly ‘yes,’ and predictions are that there will be substantial increases in sea and rainwater flood events in the coming years.”

The authors note the growing role of private flood insurance as a driver of increased flood insurance acceptance, as well as cost improvements, saying with continued improvement in private mapping technologies (such as Aon’s Impact Forecasting model), private flood insurance companies have become much more adept at underwriting flood insurance and more willing to do so.

“The flood insurance market is opening up to greater competition, improving technologies and expected further price refinements and improvements,” the authors said. “Within the [Special Flood Hazard Areas], the mortgage industry is becoming more and more accustomed to the entry of private flood carriers, although sticking points remain with some banks around the adequacy and portability of coverage, which it is hoped a long-term NFIP reauthorization will resolve. Tension can be expected between what has been essentially a government monopoly and new private entrants, but it can also be expected that we will see a resolution towards greater options and price choices for consumers and better public-private partnering inside and outside the SFHAs.”

Meanwhile, the authors suggest, mortgage lenders (especially local ones) “would appear to be well-served to keep an eye toward the future and stay ahead of creeping sea level rise and brimming rain gauges, no matter what this hurricane season brings.”

The paper can be downloaded at

MBA Education offers a free webinar (for MBA members), Global Climate Change and the Impact on Coastal Real Estate, on Tuesday, July 31 from 2:00-3:30 p.m. ET. The webinar is presented with the Union of Concerned Scientists. For more information, click