Congress took crucial steps last year to reform government-backed flood insurance by passing a law that allowed for market-based rate increases in high-risk areas. But with opponents now trying to stall these reforms, lawmakers must reaffirm their support for these badly needed rate fixes and allow them to take effect without delay.
The National Flood Insurance Program, which provides coverage for homeowners and businesses in flood-prone areas, is nearly $30 billion in debt. Delaying reforms could threaten the program’s future as well as drive up our national debt.
While the NFIP has generally been able to pay for itself in the past through insurance premiums, the combined impact of hurricanes Katrina, Rita, Wilma and Sandy have swelled the program’s payouts nearly thirtyfold. Now, the $3.6 billion that the NFIP receives annually from premiums is barely enough to make a dent in its total debt load.
In 2012, Congress finally began to put the NFIP on a path to long-term sustainability with the Biggert-Waters Flood Insurance Reform Act. The law, which garnered overwhelming bipartisan support, eliminated long-standing subsidies for nearly 355,000 homes and 87,000 businesses in high-risk areas — subsidies that had kept insurance premiums in these areas below market rates. The U.S. Government Accountability Office has estimated that the NFIP subsidies have cost the program about $17 billion in revenue over the past decade.
The new rates more accurately reflect the risk that residents and businesses in these flood-prone areas face. These increases are generally modest, targeted and slow to take effect. The Federal Emergency Management Agency has estimated homes at the flood line in an elevated-risk “AE” zone, for example, could have a premium of more than $1,800, while a home four feet above the line could be charged a rate of about $500.
Unfortunately, with many of the new rates set to kick in on Oct. 1, reform opponents have launched a last-minute campaign to delay them around a few isolated cases of high rate increases. But a number of these increases apply to homes far below the flood zone, where many property owners had been paying as little as 40 percent of the true market rate.
In fact, a GAO study in July found that the vast majority of residential rates phasing in this year apply to second homes, whose owners are eminently capable of absorbing higher costs. These homes have long been subsidized by the higher, more accurate rates charged to primary homes and should not have been eligible for subsidies in the first place.
These beach house owners have the most to gain from stalling the increases, and a number of elected officials — mostly concentrated in the Gulf and the Northeast — have seized on isolated cases of high increases to block sensible, accurate rates from being implemented.
This debate over flood insurance takes the spotlight on Sept. 18, as the Senate Banking Committee will hold a hearing on the NFIP and the new flood insurance rates. It’s crucial that committee members turn back efforts to stall the rate adjustments.
Delaying these new rates would drive up debt and further weaken the NFIP’s stability. It would also hurt the same people that opponents of Biggert-Waters claim to be helping by setting them up for even higher increases in the future.
Congress has already acknowledged the critical need for NFIP reform by passing Biggert-Waters. Now, lawmakers must stick to their votes and let the rates take effect as planned.
Frank Nutter is president of the Reinsurance Association of America.