Congressional Action Needed to Fix Flood Insurance | Commentary
In recent months, it has become clear that congressional action is needed to address unintended, drastic increases to National Flood Insurance Program rates for home and business owners along our coasts and rivers.
A confluence of the Biggert-Waters Act of 2012 (meant to stabilize the NFIP), incomplete and inaccurate Federal Emergency Management Agency maps and questionable actuarial calculations has led to premium increases of up to 5,000 percent and more — for policyholders who have built to code and never flooded.
Unless addressed, changes to the NFIP will do harm to the people the program was designed to protect. For example, we are aware of a middle-class homeowner who built to code and has never flooded whose annual premium will go from $633 to a completely unviable $28,554.
Louisiana and New Jersey are at the forefront of this issue because our communities are some of the first to receive new FEMA flood maps since the passage of Biggert-Waters, which is how some premium increases are triggered. However, as new FEMA flood maps are rolled out across the country, the threat of runaway NFIP rates is to all of America. All 50 states participate in the NFIP, and according to the National Oceanic and Atmospheric Administration, 55 percent of Americans live within 50 miles of the coast.
In most cases, the astronomical increases are for owners who built to FEMA code and have never flooded. Individuals have played by the rules and maintained flood insurance, and yet Congress and FEMA are changing the rules in the middle of the game.
Some say that these changes are necessary to get rid of “subsidized” rates. But the vast majority of policyholders — 81 percent — are not subsidized. Rather, they are already “actuarially rated,” meaning that FEMA has deemed the rates as reflecting true risk, including “grandfathered” properties.
NFIP rates suddenly jumping up 5,000 percent in the middle of a mortgage — when the owner had no reason to anticipate this unaffordable increase when the original contract was signed — contradicts typical insurance practice and reasonable expectation. And businesses and individuals do not have a choice — flood insurance along our coasts and rivers is almost always government-mandated.
The consequences are clear and devastating. Owners will lose everything, values of unsellable properties will plummet, bank mortgages will go into default, local tax bases will erode and economies will be eviscerated. Ironically, this will ultimately destroy the NFIP itself, as policyholders will leave the program in droves.
The good news is that since this issue was brought to the attention of Congress, the response has been swift. In early June, the House passed a bipartisan one-year delay to premium hikes as a part of the Homeland Security appropriations legislation. In another show of bipartisan support, just recently, the Senate Appropriations Committee included the same one-year delay in its Homeland Security Appropriations bill, which awaits consideration by the full Senate. With a strong bipartisan focus on this issue in both the House and Senate, we are in a position to fix a problem that must be resolved: ensuring a sustainable, actuarially responsible NFIP that does not kill jobs and our local economies.
Michael Hecht is the president and CEO of Greater New Orleans Inc. Thomas Bracken is president and CEO of New Jersey Chamber of Commerce.