Policy

Floods May Focus Lawmakers on Insurance Program Deep in the Red

Program’s current funds probably not enough to cover claims

Residents are evacuated from their homes after severe flooding following Hurricane Harvey in north Houston August 29, 2017 in Houston, Texas. Parts of southeast Texas have received more than 40 inches of rain since Harvey made landfall on Friday, with more torrential rain expected the next several days. (Win McNamee/Getty Images)

Hurricane Harvey, on track to cause some of  the worst flooding in U.S. history, stands to complicate efforts by Congress to reauthorize next month a federal flood insurance program that’s already about $24.6 billion in debt.

The Gulf Coast floods from Harvey, which the Federal Emergency Management Agency calls “one of the worst disasters in Texas history,” threatens to deepen the debt of the National Flood Insurance Program before the Sept. 30 reauthorization deadline. The program administered by FEMA provides flood coverage to more than 4.9 million policyholders, including 593,115 in Texas.

Harris County, which includes the flooded Houston, has almost 250,000 federal flood insurance policies with total coverage value of about $69.3 billion, according to FEMA data. The agency is only authorized to borrow $5.8 billion to cover additional claims that exceed the $3.5 billion in premiums on hand as of July 1, unless Congress raises the borrowing limit.

The program’s current access to funds is “probably not enough to cover the claims,” said Steve Ellis, vice president of Taxpayers for Common Sense, a budget watchdog group.

Much of the $24.6 billion in NFIP debt stems from damage claims after hurricanes Katrina and Rita in 2005, and Superstorm Sandy in 2012.

Sandy and Harvey are reminders that the NFIP cannot be allowed to expire, Senate Minority Leader Charles E. Schumer said in a statement Tuesday.

The Government Accountability Office placed the NFIP on its high-risk list in February, saying the program “likely will not generate sufficient revenues to repay the billions of dollars borrowed from the Department of the Treasury to cover claims from the 2005 and 2012 hurricanes or potential claims related to future catastrophic losses.”

The increasing costs are cited by the Taxpayers for Common Sense as a reason for the NFIP reauthorization to include an increased focus on accurate flood zone mapping, more funding for mitigation programs that reduce risk upfront, and increased rates that more accurately reflect risk. 

Members of Congress are trying to find a way to improve the program’s financial position by reducing debt and capping increases in NFIP premiums. Even before Harvey, debates in Congress over the role of private flood insurance, funding for community flood mitigation programs, and caps on customer premiums made it seem unlikely lawmakers could pass a multi-year reauthorization of the NFIP.

House Financial Services Chairman Jeb Hensarling, a Texas Republican, has been critical of the program, saying less than half the premiums are available to pay claims. “Ninety-six percent of Americans are currently subsidizing 4 percent,” he said at a hearing in June. “It is unsustainable.”

Before the program was last reauthorized in 2012, Congress had to pass 17 short-term extension bills. If the program’s authorization lapses, which happened four times between 2008 and 2012, homeowners in designated flood zones would be unable to obtain federally backed mortgages until a new authorization passes.

The House committee was able to approve a seven-bill, five-year reauthorization package this summer, but the Senate has been unable to reach agreement on a bill to be marked up.

“We were already expecting a short-term reauthorization,” said Ellis. “The Senate hasn’t marked up a bill yet. The House hasn’t passed one. And the House and Senate versions would be different. But a short-term reauthorization wouldn’t be unprecedented.”

Sen. Bill Cassidy, R-La., is one of several lawmakers suggesting increased private participation in flood insurance markets to reduce costs through competition and to lower the federal government’s direct exposure to flood risk. He included several provisions aimed at making it easier for private insurers to sell flood policies in legislation he introduced this year with Sens. Kirsten Gillibrand, D-N.Y., and Shelley Moore Capito, R-W.Va.

Another bipartisan group of six Senators from coastal states, including New Jersey Democratic Sen. Robert Menendez, a vocal critic of FEMA’s response to Sandy, are sponsoring a measure that includes more funds for flood mitigation programs, caps on premium increases, and more consumer transparency into the flood insurance program.

Most of the proposed changes were not included in a measure introduced by Senate Banking Chairman Sen. Michael D. Crapo. That bill would extend the program for six years.

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