Both Democrats and Republicans cited concern about hurting low-income homeowners in legislation that would reauthorize the National Flood Insurance Program, but they also agreed that the program, with a current debt of $24.6 billion, needs to be on sounder financial ground.
Lawmakers are working to beat the expiration of the current authorization on Sept. 30. Without new authorization in place, housing markets in coastal and flood-prone areas could be disrupted.
Democrats complained that draft legislation, consisting partly of three bills, wouldn’t provide funds for flood risk mitigation and would increase rates for the poorest homeowners.
Besides the program’s long-term debt, much of it racked up from Hurricanes Katrina and Rita in 2005 and Superstorm Sandy in 2012, the Congressional Budget Office estimated the program will run an average annual deficit of $1.4 billion, said Rep. Jeb Hensarling, the chairman of the House Financial Services Committee, which held a hearing Wednesday on the draft legislation.
“It is unsustainable,” the Texas Republican said.
Among the program’s problems are that the NFIP has a monopoly and private insurers don’t compete in the market, and also that more than half of the program’s costs are commissions paid to private insurance agents who sell policies, and other non-claims costs. Hensarling urged “fiscal conservatives” to consider changes aimed at mitigating risks.
“This is a problem that is not going away and there is a better, smarter way to handle flood insurance,” he said, noting that the NFIP’s 5.1 million policies are, in effect, subsidized by the 96 percent of Americans who don’t own homes in flood plains.
Proposed changes include increasing the participation by private companies in flood insurance markets to spread risk and potentially reduce the program’s overall cost. One provision, introduced earlier this year by Reps. Dennis A. Ross, R-Fla., and Kathy Castor, D-Fla., as a stand-alone bill, would allow private flood insurance coverage to satisfy mandatory flood insurance requirements in participating areas. Private insurers that already write and service standard National Flood Insurance Program policies would be able to sell their own flood coverage.
The reauthorization proposal includes a bill from Rep. Blaine Luetkemeyer, R-Mo., that would direct the Federal Emergency Management Agency, the overseer of the National Flood Insurance Program, to use reinsurance as a way to reduce direct taxpayer exposure to the program’s risks and losses.
The draft would direct FEMA to find ways to save money when creating flood maps used to assess premiums. One provision under consideration would allow use of locally created flood maps, rather than federally created maps, if they meet FEMA standards. In fiscal 2016, Congress appropriated $190 million for flood map creation. Panel members say the federal cost of maps would be lower if they were created and paid for locally.
Reauthorization of the NFIP will have to include changes to make flood mapping fairer and to address claims concerns raised by Superstorm Sandy victims, said Rep. Sean P. Duffy, the Wisconsin Republican who is chairman of the House Financial Services Subcommittee on Housing and Insurance. “I think it’s going to need a coalition of Republicans and Democrats working together to make sure we have those reforms in this bill.”
Duffy said he intended to encourage bipartisan efforts when he released the discussion draft of the reauthorization bill two weeks ago. He cut that bill into six pieces, including the three bills and including sections on encouraging private insurers and raising rates.
Duffy complained Wednesday about the program’s “grandfathering” of long-term policyholders, who pay low premiums even though their homes would not meet current building codes. Among those with grandfathered policies are people owning multimillion dollar homes, while low-income homeowners suffer greater rate increases, he said.
“We have poor people subsidizing rich people,” Duffy said. “I find that to be outrageous.”
While there are provisions in the draft that reflect bipartisan agreement, the bill “absolutely falls short in many respects,” said California Rep. Maxine Waters, the committee’s ranking Democrat and co-author of the last five-year authorization. The bill’s lack of mitigation funding, and its reliance instead on local communities to find ways to pay to build levees and invest in other flood protection measures, are also unacceptable, she said.
Waters urged a long-term reauthorization, as opposed to short-term extensions that disrupt markets, and the provision of “robust affordability assistance to those who may literally lose their homes if we do not act.” She and Duffy spent much of the two-hour-plus hearing Wednesday huddled in discussion.
Duffy said there were meetings scheduled with Democrats “to hopefully be able to hammer out a bipartisan deal. I think that would be great in this partisan environment, taking a bipartisan bill” to the floor.
Providing testimony at the hearing was Caitlin Berni, a vice president with Greater New Orleans Inc., a member of the Coalition for Sustainable Flood Insurance, a group of 250 organizations formed during Congress’ 2012 effort at overhauling the program.
Berni said the coalition is concerned about the ongoing affordability of the program for poorer homeowners. Raising the minimum annual increase to 8 percent will “have a detrimental effect on premium affordability.” The bill also would limit rate increases to a maximum of 15 percent a year.
Another witness, Steve Ellis, vice president of Taxpayers for Common Sense, opposed the proposal to set “an artificial rate cap,” but liked provisions that would make risk assessments more transparent to policyholders so that they can take steps to reduce their risks and premiums. Ellis also complained that an NFIP study found that in many areas, wealthy homeowners were the ones who most often received subsidized premiums because of their grandfathered status.
Ellis called the draft legislation a “thoughtful legislative start.”
A common criticism of calls to open up the market to private insurers is that they would cherry-pick wealthy homeowners who can afford private insurance, while leaving the already struggling NFIP with poorer, often subsidized, policyholders.
But NFIP policyholders are those who must get flood insurance because they live in a flood plain and face at least a 1 percent annual chance of flooding, said R.J. Lehmann, a senior fellow at the conservative think tank R Street Institute.
“This is a high-risk cohort,” he said of NFIP customers. “There are, by and large, no cherries to pick.”
Besides the House bills under consideration by the Financial Services Committee, a draft Senate reauthorization measure, proposed by Louisiana Republican Bill Cassidy and New York Democrat Kirsten Gillibrand, is being discussed in that chamber. While the Senate proposal calls for a 10-year reauthorization, it contains similar provisions to the House version.
Senate Banking Chairman Michael D. Crapo of Idaho has said that reauthorizing the program before it expires is one of his top priorities.