Buyers of homes in flood zones could be encountering unexpected hurdles this week: The government shutdown that took effect on Wednesday also has suspended the National Flood Insurance Program’s ability to write new policies or renew existing ones.
No state has more flood insurance policies than Florida, home to 1.7 million of the 4.7 million homes covered by the program, which is managed by the Federal Emergency Management Agency.
While the program can still pay claims during the shutdown, a lengthy suspension could thwart real estate transactions where mortgages require flood insurance, said Shannon McGahn, executive vice president and chief advocacy officer at the National Association of Realtors. Lenders are prohibited from issuing government-backed mortgages for properties in FEMA-designated “special flood hazard areas” that are not covered by flood insurance.
“Each day a shutdown continues, the effects on the housing sector grow,” McGahn told The Associated Press earlier this week.
However, Florida has an advantage — access to a large private flood insurance market that state insurance officials have been encouraging for years.
Companies authorized to sell flood insurance outside of NFIP include Neptune Flood, Wright Flood, Chubb, Private Market Flood, American Strategic Insurance Corp. and Tower Hill Insurance.
Florida Realtors president Tim Weisheyer said in an interview with the South Florida Sun Sentinel that the organization has not yet heard of “significant issues or delays or cancellations of closings” from its network of 240,000 agents.
But, he said, “it’s only a day and a half into this process.” He added, “I have a suspicion that as time continues, when we move into the beginning or middle of next week if there’s still not a solution in play from Congress, the concerns from our members are going to become more significant.”
While it might be too early to report trends, Mark Friedlander, senior director of the industry-funded Insurance Information Institute, said the shutdown could drive significant amounts of flood insurance business to the private market.
“This is a great opportunity for private flood insurers to grow their market share in Florida and across the country,” Friedlander told the Sun Sentinel. “As real estate closings that require flood insurance (homes in Special Flood Hazard Areas) will be impacted by the shutdown, private flood coverage options will be essential for homebuyers with upcoming transactions.”
Florida, he said, has a “robust private flood market with numerous options,” including “higher coverage limits than NFIP and additional living expenses, which pays for temporary living for homeowners displaced from their homes by a covered loss.”
He added that private policies are “very competitively priced” in Florida.
Millions of policyholders rely on the NFIP to secure flood coverage that is rarely included in standard homeowners policies and is required for mortgages in areas deemed high-risk.
NFIP supports nearly half a million U.S. home sales annually, according to NAR. Past lapses have shown the potential impact on the market: During a roughly 30-day freeze in June 2010, NAR estimated 1,400 home sales were canceled or delayed each day.
The problem would be most acutely felt in Florida, where about 14,800 monthly home sale closings depend on securing flood insurance. Texas, with 3,500 monthly closings, would also be impacted.
If the shutdown lingers, Weisheyer said it’s “very likely” that his organization would recommend members suggest that homebuyers look into the private flood market if they face delays in closing mortgage loans.
“It’s certainly something that they can explore and utilize in the interim while Congress figures out how to get together and pass a continuing resolution that reestablishes operation of our government,” he said.
But some insurance watchdog groups stop short of recommending private flood insurance as a long-term solution.
Jordan Haedtier, spokesman for the Insurance Fairness Project, a progressive organization focused on challenges related to climate change, said that while private insurance “may be a good stand-in to keep real estate markets unfrozen” during the shutdown, “it should not be considered a real long-term solution.”
Haedtier said many private flood insurers are not subject to the same scrutiny from state insurance regulators because they are considered “surplus lines” carriers. They do not contribute to state guarantee funds, he said, meaning policyholders will have no recourse if they become insolvent.
Shiloh Elliott, spokeswoman for the Florida Office of Insurance Regulation, pointed out that not all providers of private insurance in the state are unregulated. “In fact, private flood purchased in the (regulated) market can be more comprehensive than what can be purchased through the NFIP,” she said.
Six Florida-regulated regulated insurers currently manage 23,583 private flood policies, according to the office’s monthly tally of insurance policies.
Neptune Flood parent Neptune Insurance Holdings underwent the second and final day of an initial public stock offering on Thursday. A spokeswoman said she could not comment on the shutdown’s effect on Neptune’s business because of a “quiet period” mandated by the Securities & Exchange Commission when companies first sell stock on the public market.
Neptune’s stock price, which opened on Wednesday at $20.00 a share, closed on Thursday at $28.45, a 14.7% gain.
Congress created the NFIP through the National Flood Insurance Act of 1968. It was meant to improve flood insurance access and affordability but also to set floodplain management standards.
NFIP’s last long-term reauthorization was in 2012.
Since the end of 2017, its continuation has depended on 33 short-term reauthorizations. Lawmakers, industry groups and policyholders have long called for NFIP reform to give the program stability and to address issues with floodplain mapping, affordability and solvency.
Floods are the “most common and widespread” type of disaster in the U.S., according to the National Oceanic and Atmospheric Association, occurring in every state and territory and putting pressure on the insurance system.
But only about 4% of homeowners had flood coverage as of November 2024, according to the Government Accountability Office.
The NFIP has also struggled to set premium prices that balance affordability with solvency. The program borrows from the U.S. Treasury when it cannot payout claims and currently owes almost $23 billion.
A group of House lawmakers introduced a bill last week to reauthorize the program until Nov. 21. But Congress must look at a longer term solution, said Amanda Devecka-Rinear, executive director of the disaster-survivor advocacy group New Jersey Organizing Project.
“It’s not fair to storm survivors and their communities to have this unpredictability and instability,” she said.
Information from The Associated Press was used to supplement this report.
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071 or by email at rhurtibise@sunsentinel.com.
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