Massachusetts may yet feel the effects of Hurricane Harvey, with huge losses from heavy rains weighing heavily on the government program that provides flood insurance for tens of thousands of properties in the state’s coastal regions.
The National Flood Insurance Program is set to expire Sept. 30, and even before Harvey, Congress was struggling to right a program that was already more than $24 billion in debt — and had little additional capacity to cover the losses on the scale expected from Harvey.
An analysis by Bloomberg Intelligence estimated the NFIP had $105 billion in insurance-in-force, or the value of policies in place, in the Harvey-affected regions of Texas.
Even with caps on annual increases, premiums for flood insurance have risen in recent years, and more property owners in Massachusetts found themselves in need of the insurance after the Federal Emergency Management Agency redrew flood zones in 2013.
The average premium in Massachusetts is already more than $1,000 a year, according to an analysis of FEMA data by ValuePenguin, a consumer research website. That’s significantly higher than the national average of $672.
Most private insurers have not typically covered flood damages, yet mortgage lenders typically require homeowners and property owners in flood-prone zones to have the insurance as a condition of getting a loan. So the government program is often the only option for most owners. FEMA estimates there are more than 65,000 flood policies in Massachusetts.
Industry specialists said there are so many variables — from the scale of losses, to the response from Congress — that it’s unclear what will happen to insurance rates in Massachusetts and other regions of the country at higher risk of flood because of Harvey.
Among the possibilities:
■ Congress simply extends the flood insurance program. With little more than a month before expiration, it may be a tall order to rewrite the national program while losses from Harvey are still coming in. Homeowners would likely not see much changes to premiums, and those in flood zones in need of a new mortgage that requires flood coverage should able to secure a policy.
But an extension will likely further plunge the program into debt, pushing it near its current borrowing limit of $30 billion. This has happened 17 times between 2008 and 2012.
■ Congress could rewrite the flood program. Here the effects could go in any number of directions, from changes in rates, paying for mitigation measures to even whether businesses in flood zones would need to buy the insurance.
Efforts by the House Financial Services Committee have run into a partisan divide: Democrats opposed an effort to raise premiums by 6.5 percent a year and to exempt businesses from purchasing flood insurance.
Other proposals the committee discussed included lowering the cap on annual rate increases from 18 to 15 percent, expanding the ways FEMA can assess risk in an area, and increasing efforts to lower risk in flood zones.
Critics say any new measures should shift the focus from keeping premiums at their lowest, to ones that price policies more on the risk the property faces. They also want the program to spend more to protect such properties from flooding in the first place, and encourage more market competition, said Jenn Fogel-Bublick, a spokeswoman for a coalition of insurers, environmental organizations, and civic advocates called SmarterSafer.
“Right now, when you purchase flood insurance for the first time, you’re essentially locked into that rate or grandfathered in regard of whether your risk changes,” she said. This means people with inland homes could end up paying curiously high rates compared to coastal ones, based on when they bought the policy. SmarterSafer and others want premiums to match up with risk, and money to be used for measures to prevent damage.
■ Congress could let the program lapse after Sept. 30. This will likely make it hard for any property owners who need to purchase flood insurance as a condition of a new mortgage to close on their deals.
“It hurts the real estate market because any closings in a floodplain have to be slowed down until they deal with that,” Fogel-Bublick said. Between 2008 and 2012, this happened four times before the law was extended to its current expiration date.
■ Private insurers could step in. Several local brokers noted that insurance companies have waded into the market with private policies. Geoff Gordon of Gordon Atlantic Insurance said homeowners now have more choices for coverage than five years ago, and private insurers, with their advanced models, may be able to offer lower rates than those charged by the government.
Joe Rossi of Rogers & Gray Insurance says changes Congress made to the program in 2012 required lenders to accept policies from private insurers as adequate coverage if they meet federal standards. Insurers are increasingly seeing New England as a big opportunity, he said, partly because Massachusetts has essentially dodged a significant catastrophic storm for 25-plus years.