Get PJ Media on your Apple

Legislators Scramble to Postpone Flood Insurance Rate Increase They Triggered

The Obamacare of natural disasters: Legislators blame FEMA and say they never meant to hit homeowners so extremely.

by
Rodrigo Sermeño

Bio

November 16, 2013 - 9:08 pm
Page 1 of 2  Next ->   View as Single Page

WASHINGTON – Skyrocketing flood insurance rates have prompted members of Congress to seek putting off adjustments to the federal flood insurance program, a few weeks after major provisions of the law mandating the changes came into effect.

The law phases out insurance subsidies enjoyed for decades by owners of homes that were built in high-risk flood zones before the creation of the original flood insurance rate maps and building standards, which occurred in most communities in the 1970s and 1980s.

The law, officially known as the Biggert-Waters Flood Insurance Reform Act, is being rolled out in stages, with a major part having gone into effect on Oct. 1. It removes subsidies that keep federal flood insurance premiums artificially low for more than a million policyholders around the country. The act also ordered a remapping of flood zones, which means many properties that may not have been considered at risk for flooding in the past now will be.

Under Biggert-Waters, those who bought homes after July 2012 became ineligible for subsidies after Oct. 1. Owners of vacation homes began to lose federal subsidies in January, with annual rate increases of 25 percent until reaching full price.

States are searching for ways to reduce homeowners’ flood insurance bills after hefty rate hikes have hit homeowners.

Mississippi sued the federal government to try to block the law, saying the U.S. failed to study the economic impact. Florida, home to 37 percent of the nation’s 5.6 million flood policies, is considering starting a state-based flood insurance pool.

Craig Fugate, the FEMA administrator, told Congress last month that the law unfairly hit middle-class homeowners who had not been flooded repeatedly. He also expressed concern that some property owners might have difficulty paying the new premiums, but said it was up to Congress to delay the premium increases because he does not believe he has the authority under the Biggert-Waters Act to stop the changes administratively.

The law was intended to help reduce the debt of the National Flood Insurance Program (NFIP), a debt now estimated at more than $25 billion, by bringing rates charges more in line with the risk and losses of living in high flood-hazard areas.

The program began in 1968 as a way to extend government insurance to homeowners in communities that tend to flood. It was created because private insurance industry was unwilling to provide flood insurance given that in most cases premiums would not be sufficient to cover the massive payouts needed in the wake of a big flood.

The program was fiscally solvent for many years, but several natural disasters – including hurricanes Katrina and Sandy – have taken their toll. This was also compounded by an increasing number of Americans moving to coastal areas.

Private flood insurance is available, but it is often very expensive and out of reach for many homeowners.

The NFIP insures more than 5.5 million residential and commercial policyholders totaling approximately $1.2 trillion in insurance coverage. About 20 percent of them receive subsidies.

FEMA estimates that its subsidized rates represented as little as 40 percent of the actual risk.

By November 2012 the NFIP was more than $20 billion in debt, a number that was expected to increase to nearly $30 billion by the time the bill from Hurricane Sandy was finally tallied. As an effort to regain control of the increasingly unsustainable program, Congress passed the law in July 2012 with strong bipartisan support just months before Sandy struck the Northeast coast in late October.

Now, however, a bipartisan group of House members and senators, primarily from Gulf Coast states, is pressing for significant changes to the law.

Rep. Maxine Waters (D-Calif.), who said she never expected the bill to cause large rate increases, is now working to delay implementation.

“When I agreed to coauthor this legislation, our goal was to create a bipartisan solution to repair our National Flood Insurance Program,” Waters said in a Sept. 30 statement. “Neither Democrats nor Republicans envisioned it would reap the kind of harm and heartache that may result from this law going into effect.”

Comments are closed.

Top Rated Comments   
The only justification for federally subsidized flood insurance is that the federal government is going to come in and pay for much of what isn't covered anyway, so it helps people get some coverage now so insurance pays the claim later.

But it remains the case that people who live in these areas are being subsidized by people who do not. Now, if your area is re-designated after you bought, the increased costs aren't your fault. Have a tissue. Life is hard and unfair and then you die.

For most though, they knew or should have known (flood zone status is among the items required to be disclosed before closing). And after one claim on a federally-subsidized policy, the rest is just a gift - yet those ocean front homes keep getting rebuilt bigger and costlier than ever.

Here's a plan: you pay your bills, I'll pay mine. Sound fair? I live at the highest point in my county for a reason, and it's not to cover the dummies who build by the swamp or ocean.
44 weeks ago
44 weeks ago Link To Comment
Yes, you are completely correct. Here is how it should work: Private companies in the business of assessing and underwriting risk should supply flood insurance. Where it is not available or too expensive then only rich people will build or buy in those locations or the price of existing homes will drop to where the potential buyer is willing to take the risk. Once government steps in the whole balance gets upset and corrupted and there is no possibility of rational behavior or fairness to taxpayers. It is totally stupid and unconstitutional for the government to have ever gotten involved in insuring or co-insuring private property.
44 weeks ago
44 weeks ago Link To Comment
What were they thinking? Didn't they know those homes in some storm's bull's eye were owned by wealthy lawyers, doctors, and CEO with major political clout? I'm all in favor of terminating, not modifying, insurance for people who ought to self-insure because they are so rich. But really, who did Congress think they were foolin'?

"private insurance industry was unwilling to provide flood insurance"

You know, there was rationality behind those private insurance choices. There's no other sanity or rationality behind the government picking up the tab except that powerful people bend the government purse to hold them harmless from any reasonable risk. I could say the same thing about people who don't buy insurance and then get sick and want someone else to pick up the tab for their profligacy, but it seems the modern concept of government is that it exists to guarantee citizens that they will suffer no adverse repercussions from their stupidity and risky behavior. That's an insane ultimately destructive view of government that can end only in the destruction of the rule of law, wars of the haves against the have-nots, and the general degradation of life for all in the nation. But, hey, it seems to be the government Americans want. Our betters were wise to fear Democracy.
44 weeks ago
44 weeks ago Link To Comment
All Comments   (19)
All Comments   (19)
Sort: Newest Oldest Top Rated
my roomate's mother-in-law makes $86/hr on the internet. She has been fired from work for 6 months but last month her check was $20466 just working on the internet for a few hours. check

WWW.fly31.COM
44 weeks ago
44 weeks ago Link To Comment
my classmate's aunt makes $62/hr on the computer. She has been unemployed for 10 months but last month her pay was $21044 just working on the computer for a few hours. go to this site....... http://www.Bay95.com
44 weeks ago
44 weeks ago Link To Comment

The sentiment expressed here is spot on, but there is an inequity in offering subsidized insurance so some guy can build next to the water, then yanking the subsidy and making his house worthless and unaffordable.

We can't run out of this briar patch; the phase out of the program will have to take longer than they planned and people who bought or built (I'm not one) in reliance on the program need to have some kind of slow phase-out so they can amortize the loss.
44 weeks ago
44 weeks ago Link To Comment
Sen. C. Booker - "We’re rushing forward with this not knowing the impact it’s going to have?” ... “Not knowing the damage? That just seems to me to be a million percent wrong and damaging.”

I wonder if he will extend this line of reasoning to Obamacare?
44 weeks ago
44 weeks ago Link To Comment
Socialism never has worked, never will work and should be made illegal according to an Amendment to the U.S. Constitution. Ditto for communism for those who see a freakin' difference.
44 weeks ago
44 weeks ago Link To Comment
A policy that spends huge amounts of taxpayers money encouraging people to build houses in flood zones.

And politicians want to keep this!?
44 weeks ago
44 weeks ago Link To Comment
Insurance only works because everyone who participates pays into it and only a few of those actually get a payout when/if it's needed. While the cost of the payout may be high in catastrophic situations it is normally an isolated event that is covered by the participation of all of those that remain unaffected. What Katrina and Sandy has exposed, and the insurance companies already understood, is that when a massive flood occurs it is not an isolated event. Instead of it being a few payouts over a longer period to a few members of the pool, it is a massive payout for almost every member in the pool. Unless the thousands of homeowners have all paid in enough premiums to cover their own houses, meaning they've paid for their home twice, the pool of unaffected is no longer large enough to pay for the replacement houses of all those who were effected. Insurance got out of this market for that very reason or at least made their premium rates reflect the actual costs of Home replacement. The bottom line is, there should be no government subsidies for an insurance model that simply does not work. If you want to live in a place prone to hurricanes and/or flooding you either pay the rates commensurate with the risk or you take the risk and hope for the best. Period.
44 weeks ago
44 weeks ago Link To Comment
The NFIP made a lot more sense in the 1960s and 70s. Land development was going gangbusters, and people were buying in areas they did not know were flood hazard areas. It's only a little creek out back, isn't it pretty? It's not so pretty when it is two feet over your floor. It's even less pretty when disaster relief funds were being spent time after time for the same property.

The flood insurance rate maps (FIRM) were where FEMA made their name, and they have been a boon to landowners. You can go to city hall and see if the house you love is under water. Now, you can even do it on line. The flood plain development ordinances have been just as valuable, as they prohibit building many kinds of works in identified flood plains. The rationale is, you want our subsidized insurance, you enact our ordinances. The intent, from the beginning, was to discourage building or rebuilding in flood plains. Stopping the subsidy discourages it even more.

Since they have stripped the subsidy, there is no reason for 10,000 communities to keep their flood plain ordinances. This may be good for developers or it may not. I don't think it will help property owners much. The mapping pretty much assures that you won't get a loan if you're in an A Zone, so the need for the Flood Plain ordinances is much less. But the other thing the Flood Plain Ordinances do, is to mandate some construction standards (Detention ponds, not filling the floodway) that prevent developments from flooding out the people downstream. Hydraulics and hydrology need to be looked at for the entire watershed.

The existing mapping is of pretty low quality. New hydrology is necessary, as the existing models under estimate rainfall probability. This became pretty clear when I had to stand before the City Council and explain why we had three 25-year events in two years. We don't even talk about the 100-year storm, it is kind of a joke. We call it "The Design Storm." Likewise the hydraulics are pretty bad. I've never seen a FIRM study that didn't have a significant error that effected my project.

In general, this legislation sounds like a good deal.

44 weeks ago
44 weeks ago Link To Comment
"National Flood Insurance Program"

Hey I found the problem Ms. Waters, "National", how about letting the states control this and get your hands out of the peoples pockets again.
44 weeks ago
44 weeks ago Link To Comment
Another Federal program working at optimum efficiency. Yet, they are about to tackle 1/6 of the Nation's economy. Good thing we can just print more money without having to consider the consequences.
44 weeks ago
44 weeks ago Link To Comment
1 2 Next View All

One Trackback to “Legislators Scramble to Postpone Flood Insurance Rate Increase They Triggered”