Federal flood insurance program lapses as Congress wrestles over changes

The industry press, like Insurance & Financial Advisor and National Underwriter, have covered this a lot in the past few days, but it hasn't been mentioned much in the general media: The National Flood Insurance Program has (again) been allowed to expire.

That means that the federal flood program -- which is the first place most people go to to find flood coverage, insurance that in many cases is required by their banks -- cannot sell new policies. And Congress has gone on a two-week break.

How big a problem is this? Probably just a short-term one. (This has happened repeatedly.) In a March 29 memo, a FEMA official said that Senate Majority Leader Harry Reid's office said that the bill that restores the authority for the program "will be the Senate's first item of business when they return to session April 12th. Reid's office also said that the Program will be extended retroactively to make up for the time it expired."

In a useful list of Frequently Asked Questions, FEMA says that most of the 5.6 million flood insurance policyholders will not be affected. Policies in place will remain in force. Claims will still be paid.

But during the lapse, the program cannot issue new policies, boost coverage on existing policies, or issue renewal policies. The biggest concerns are likely to be from folks trying to renew coverage or buy it as a requirement for getting a mortgage. The FAQs listed above have some specifics on how things will work during the lapse (i.e. if the premium payment was made from the escrow account as part of the loan closing, the policy may be issued.)