Disaster Preparedness & Recovery

Congress Tries (Again) to Sustain the National Flood Insurance Program

The program is $24 billion in debt and that deficit won’t be erased without reform.

Taxpayers have been subsidizing risky development for years.
Taxpayers have been subsidizing risky development for years. Photo from APIMAGES.COM

When researchers from the National Oceanic and Atmospheric Administration recently studied stream gauge records in the Northeast United States from the past 100 years, they discovered what many researchers have found in different parts of the country and world: an upward trend in the frequency and magnitude of floods. That was the case in the Northeast even with increased reforestation, which generally decreases flooding.

The researchers found that there has been a “wet mode” caused by North Atlantic Oscillation, the circulation of air currents along the North Atlantic Ocean, since 1970, resulting in an extra flood per year and that the trend will likely continue.

A study led by a World Bank economist and published in Nature Climate Change warned that the annual costs from flooding in the world’s largest coastal cities could grow from about $6 billion to $1 trillion by 2050. Among the top cities listed were New York, New Orleans, Miami, Boston and Tampa Bay, Fla. But the study also said that some cities not on the list now will face increased risk in the future. And a 2013 FEMA report said areas in the U.S. at risk for floods would increase 45 percent by 2100, which could double the number of flood-prone properties.

That all adds up to more costs, which have already been increasing to the point that the National Flood Insurance Program (NFIP) can’t keep up without major changes. The program is $24 billion in debt and that deficit won’t be erased without reform. It also means that increased investment in mitigation efforts prior to an event is necessary before the costs of disaster become overwhelming.

The NFIP, it’s been pointed out, wasn’t necessarily set up with actuarial soundness in mind, but to encourage people to buy flood insurance. But in so doing, it has inadvertently encouraged development that is too close to water. The Consumer Federation of America (CFA) has said you can’t lower prices by ignoring the risk of flooding and that real reform requires honesty about the risks of living in a flood zone. CFA called the National Flood Insurance Program an unwise and untargeted program that “encourages people to live in high-risk flood plains, unnecessarily risking people’s lives and possessions.” 

Change initially came in the form of the Biggert-Waters Flood Insurance Reform Act of 2012, which attempted to eliminate federally subsidized insurance rates for properties with repetitive losses in flood zones, those that have been protected from risk-based rates by grandfathering and secondary homes, by moving toward risk-based pricing. It also sought to improve the accuracy of floodplain maps, among other things, to preserve the NFIP and shift more of the cost away from taxpayers and to property owners.

The CFA supported Biggert-Waters because it attempted to bring risk in line with flood insurance premiums. But the legislation had unintended consequences, namely boosting some premiums dramatically, which caught many homeowners by surprise. What the legislation failed to do was protect some of the poorer homeowners whose flood insurance would be skyrocketing. There are some real “horror stories,” according to J. Robert Hunter, the CFA’s director of insurance and former administrator of NFIP.

One example is a Florida man whose insurance on a $150,000 house went from $2,000 to slightly more than $20,000. “He is a laborer,” Hunter said. “He said he bought the house in good faith. He was told what the premiums were but had no idea this was coming.”

Hunter said he’s worried about “Joe Sixpack,” such as the man in Florida, who had already purchased the home, and not the person in a “zillion-dollar mansion.” He said somebody like the Florida man should get a subsidy and that the risk for new homebuyers should be known. “I’m talking about when I buy a house or Joe Sixpack buys a house, he ought to know what the risk is.”

Such horror stories led to the Homeowner Flood Insurance Affordability Act of 2013, signed into law by President Barack Obama in March, which delays implementation and addresses affordability. Lawmakers say the new legislation is intended to fix Biggert-Waters while also supporting its intent.

“I think there are solutions, but Congress has to figure out a way to take care of people who are really hurting but not slow down the movement toward soundness,” Hunter said. “Target subsidies to help the people who really need it.”

Chad Berginnis, executive director of the Association of State Floodplain Managers, lamented the “hysteria” surrounding Biggert-Waters and said there was a small percentage of policies that increased significantly. He would liked to have seen a more targeted legislative approach than what the House did with the new legislation, which was to undo a lot of the insurance part of the Biggert-Waters reforms.

“The one trigger that was causing the most pain across the country was the trigger to full-risk rates upon the sale of a home or a new policy,” Berginnis said. He added that there should be targeted relief, such as vouchers for lower-income people or a low-interest mitigation loan program that doesn’t require payment until the home is sold. Also, eliminating the full-risk trigger and putting policies on a longer implementation schedule would decrease the pain.

The Homeowner Flood Insurance Affordability Act of 2013 lowers the rate increases on some policies and prevents increases on other policies, according to FEMA’s website.

The act also repeals some rate increases that had already gone into effect and refunds those policyholders. In addition, it authorizes more resources for the National Academy of Sciences to do an affordability study and requires FEMA, which administers NFIP, to prepare an affordability framework.

The new law also calls for gradual increases in rates on properties that now have artificially low rates instead of the immediate full-risk increases that were seen under Biggert-Waters. Premiums for most properties will not be allowed to increase more than 18 percent per year. The exceptions include older business properties, older non-primary residences and repetitive loss properties.

FEMA was in the process of developing plans for implementation at press time, but Dave Miller, FEMA’s associate administrator for the Federal Insurance and Mitigation Administration, said the first step is to restore the subsidized rates for renewal and new policies. That will avoid the huge rate increases seen under Biggert-Waters as no increase will be more than 18 and a half percent under the new law. “We’ve started the process of stopping those huge rate increases that went from zero to the full risk rate,” Miller said. The next step will be to refund those whose had the higher premiums, he said.

“Congress still wants us to talk about risk and what that dollar statement of risk will be, and that’s a look at the actuarial tables,” Miller said. “We’re going to relook at actuarial tables because it has to do with what rate we charge, the methodology.” Miller said homeowners will understand their full risk so that they and the community can take steps to mitigate those risks over time. “They’ll see the full actuarial rate and the increase. It’s important they know what their full risk is.”

Jim McKay  |  Editor

Jim McKay is the editor of Emergency Management. He lives in Orangevale, Calif., with his wife, Christie, daughter, Ellie, and son, Ronan. He relaxes by fly fishing on the Truckee River for big, wild trout. Jim can be reached at jmckay@emergencymgmt.com.

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