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.”
She blamed FEMA for not conducting an affordability study before raising rates and failing to make sure its risk maps were accurate.
A group of legislators reached a deal this month to delay rate increases for several years. The bill would require FEMA to complete an affordability study, which was mandated in Biggert-Waters but not undertaken, and propose regulations that address affordability issues.
The legislation postpones the implementation of rate increases until two years after FEMA completes its affordability study. FEMA has estimated it will take two years to complete study before regulations can be issued and reviewed by Congress, meaning rate hikes would be delayed for approximately four years.
Lawmakers from both parties questioned officials about the increasing flood insurance rates at a Senate Homeland hearing this month on Hurricane Sandy recovery efforts.
Sen. Robert Menendez (D-N.J.), a co-sponsor of the new bill delaying rate hikes, called the higher rates a “man-made disaster” affecting New Jersey residents still recovering from Sandy. He said people affected by Hurricane Sandy have been hit with a “triple whammy.”
“They were first flooded by Sandy and lost their homes. The second is that they had to face repair and mitigation costs. And then now, thirdly, they are facing astronomical increases in flood insurance costs built into the flood reform bill that was passed before Sandy hit,” he said.
Menendez said the combination of updated flood maps and the phase-out of premium subsidies for the national flood insurance program threatens to force victims out of their homes and destroy entire communities.
Sen. Cory Booker (D-N.J.), who was attending his first hearing since being sworn into office, said the rate increase is going to “completely devastate” parts of New Jersey. He grilled Fugate over why an affordability study was not done.
“We’re rushing forward with this not knowing the impact it’s going to have?” he said. “Not knowing the damage? That just seems to me to be a million percent wrong and damaging.”
Fugate said completing the study before phasing in rates was not a requirement of Biggert-Waters, which mandated the simultaneous implementation of the provisions.
“Generally when you would see legislation that would tie specific action before further action would go, the language would have been written so that the affordability study would have been a requirement before you went to the next steps,” he said.
Opponents of the delay said it would derail reforms intended to save the NFIP from insolvency.
Steve Ellis, the vice president of Taxpayers for Common Sense, a nonprofit, said delaying reforms “makes good politics” but makes “bad insurance and public policy.”
“People deserve to know the cause and risk of where they live and taxpayers deserve to have those who choose to live in harm’s way pick up their share of the tab,” he said.