Insurance task force recommends tax credits for premiums

In Pennsylvania, the private flood insurance market has grown significantly, from around 1,500 policies in 2016 to nearly 16,000 in 2023. Despite this growth, only about 50,000 of the 3.1 million insured homes in the state are covered for flooding, highlighting a significant gap in protection.

In a comprehensive effort to address the rising challenges of flood insurance, the Flood Insurance Premium Assistance Task Force has released its final report for July 2024. Established by Act 22 of 2023, the Task Force was tasked with reviewing the existing flood insurance landscape and providing recommendations to improve accessibility and affordability for Pennsylvanians.

Increasing flood risks amid climate change

With the climate crisis intensifying, the task force has confirmed that Pennsylvania faces a growing threat from flood events, which are predicted to increase in both severity and frequency. These floods can cause extensive damage to homes, including structural issues and mold growth, which can exacerbate respiratory illnesses. Despite the significant risks, a common misconception persists among consumers that standard homeowners’ insurance covers flood damage, leaving many policyholders financially vulnerable when disaster strikes.

Formation and goals of the task force

Comprised of seven members, including state representatives, senators, and officials from the Pennsylvania Department of Banking and Securities and the Pennsylvania Emergency Management Agency (PEMA), the Task Force aimed to enhance flood insurance awareness and propose strategies to make it more affordable. Over six months, the Task Force convened five times, engaging with consumers, industry experts, and federal partners to gain insights into the evolving flood insurance market.

Key recommendations

1. Establish an office of Community Rating System Assistance (CRSA): This proposed office would help communities join FEMA’s CRS program, which offers flood insurance discounts based on proactive floodplain management efforts.
2. Improve disclosures during the home-buying process: The Task Force advocates for legislation to ensure better disclosure of flood risks and insurance requirements to potential buyers.
3. Incorporate continuing education credits: Flood risk and insurance courses should be integrated into the continuing education requirements for insurance producers, real estate agents, and mortgage lenders.
4. Enhance education and outreach: The Task Force recommends a robust outreach program to inform homeowners, renters, and business owners about the benefits of flood insurance.
5. Incentivize home mitigation through tax credits: Tax incentives for flood mitigation measures would encourage homeowners to take preventive actions.
6. Enhance coverage for water damage: Insurance companies should be encouraged to offer endorsements for water-related damages.
7. Incorporate flood resiliency into building codes: The Uniform Construction Code Review and Advisory Council should integrate flood resilience into building standards.
8. Propose a Pennsylvania Flood Insurance Relief Act: This legislation would allow for state income tax deductions on flood insurance premiums.
9. Further study innovative solutions: Ongoing exploration of new insurance models such as microinsurance and group coverage is recommended to bolster community resilience.

Addressing market challenges

Floods are one of the most devastating natural disasters in the United States. The report highlights that an inch of water can cause up to $25,000 in damage, a financial burden many households are ill-prepared to bear. The National Flood Insurance Program (NFIP), established in 1968, initially provided affordable flood insurance but has faced significant challenges following major disasters like Hurricane Katrina and Superstorm Sandy. Legislative reforms and new pricing approaches, such as Risk Rating 2.0, aim to stabilize the program financially and ensure premiums reflect actual risk.

Public engagement and expert input

The Task Force’s five public meetings included presentations from FEMA, PEMA, and academic institutions like Penn State Harrisburg. These sessions underscored the importance of community involvement in flood mitigation and the critical role of education in enhancing insurance uptake.

The report’s recommendations reflect a blend of public input, agency collaboration, and expert analysis. Implementing these recommendations may require legislative action, funding, and additional resources, but the Task Force is optimistic that these steps will significantly improve Pennsylvania’s flood resilience.

For more detailed information, the full report is available here.