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How to Fix Flood Insurance: Delaying the Biggert-Waters Act is Not the Answer

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The Biggert-Waters Flood Insurance Reform Act, which passed with broad bipartisan support in July 2012, requires the taxpayer-backed National Flood Insurance Program (NFIP) to set premiums that reflect true flood risk and will help put the program on a more financially secure footing. Now many of the same senators who voted to support these necessary and overdue reforms are set to gut them. Biggert-Waters is flawed but it can and should be fixed, not overturned or substantially delayed.

Short-sighted Senate bill is bad policy

Homeowners hit by insurance rate increases are understandably upset and calling for action from their senators. But continuing to subsidize flood insurance through the NFIP is not the answer, especially in the face of growing flood risks from sea level rise. Affordability concerns are valid but there are better ways to help homeowners, particularly low-income and fixed-income property owners, as I point out further down.

The Senate bill, S. 1846 or the Homeowner Flood Insurance Affordability Act of 2013, is bad policy for many reasons:

  • It will perpetuate a flood insurance system where coastal communities remain unaware of the true flood risks – until they get hit by costly damages from flooding.
  • Without accurate information, homeowners and communities may fail to take cost effective, proactive steps to protect themselves from flooding. The NFIP offers a discount to those who invest in flood-proofing measures.
  • Without the right incentives, coastal communities will continue to build and rebuild in high flood risk areas, putting more people and property in harm’s way. This is especially a problem along large stretches of the Eastern Seaboard where local sea level is rising higher and faster than the global average and worsening flood risks.
  • Long-standing subsidies to some property owners (such as those with homes built in areas prior to flood risk maps being developed there, or where updated maps show a higher risk than when the property was first insured) are simply unfair to other policyholders and taxpayers, and must be phased out.
  • The NFIP’s growing debt – currently more than $24 billion owed to the U.S. Treasury – may force questions about it very survival, at least in its current form (where no homeowner can be refused coverage as long as their community participates in the program). This could leave some homeowners without valuable protection. The Congressional Budget Office (CBO) recently scored the Senate bill and concluded that it would reduce the NFIP’s net income by $2.1 billion over ten years and that the NFIP would borrow and spend an additional $900 million over the 2014-2018 period.
  • Taxpayers nationwide will continue to be on the hook for growing costs of flooding because the NFIP will not be collecting sufficient funds from premiums to cover those costs and because of growing disaster assistance costs. The Government Accountability Office (GAO) has long put the NFIP on its High Risk List because of “concerns about its long term financial solvency and related operational issues.” Many experts think the NFIP will never be able to pay off all its debt. The fact that the NFIP’s premiums do not accurately reflect the actual risks of flooding also increases the likelihood that it won’t be able to cover future losses, especially from catastrophic events. Those losses could well grow as coastal development continues to expand against a backdrop of rising sea levels and worsening storm surge, as this report commissioned by FEMA shows.
  • Delaying Biggert-Waters by four years, as the Senate bill requires, could effectively render all its reforms moot. The bill was part of a five-year reauthorization of the NFIP, from 2012 through 2017. At this point a four-year delay could take it beyond 2017, meaning that Congress will likely have to pass a fresh bill with no certainty that these important reforms will be included. This runs completely contrary to the urgent imperative to make our local communities more safe in the face of the clear and growing risks associated with sea level rise.

There is also a House bill, H.R.3370 or the Homeowner Flood Insurance Affordability Act of 2013, that attempts to overturn some provisions of Biggert Waters and calls for a shorter delay.

Omnibus spending bill includes a delay in FEMA’s ability to implement part of the Biggert-Waters Act

Separate from the bills mentioned above, on Monday the House and Senate agreed on an omnibus spending bill that includes a provision that will delay FEMA’s ability to use updated flood risk maps to prepare for rate increases that were set to take effect for some properties. FEMA is barred from using any funds in its current budget, which runs through the end of September, to lay the necessary groundwork for those changes. Unless Congress extends this restriction for the next budget cycle, FEMA will probably be able to go ahead with implementation in 2015.

This provision in the omnibus spending bill is not helpful but is unlikely to cause more than a year’s delay in the implementation of premium increases for affected properties. The more far-reaching delays and rollbacks in S. 1846 are much more of a serious problem if they get enacted.

How to fix the Biggert-Waters Act

It is clear to most experts, on both the left and the right, that the NFIP simply cannot continue to operate as it has in the past. Biggert-Waters offers the best chance of reforming the NFIP and it would be a terrible wasted opportunity if Congress overturns it.

Here are some ideas for fixing it, some or all of which Congress should consider:

  • Address affordability concerns for low-income and fixed-income homeowners by setting up a means-tested voucher or rebate program. This can be implemented as a pilot program based on existing metrics of income cut-offs for other types of federal assistance. A National Academy of Sciences (NAS) affordability study, which could take up to two years to complete, can help inform a more long-term solution.
  • Slow the phase-in period for insurance rate increases. Currently the law requires increases to reflect true flood risks to be phased in over four years. This could be increased to 10 years instead to make them more gradual. Alternatively, the maximum annual increases could be lowered from 25 percent (of the total increase) to 10 percent.
  • Enforce requirements for the mandatory purchase of insurance in all high flood risk areas and strongly encourage it wherever risks are present.
  • Strongly encourage communities to join the Community Rating System (CRS) program to help reduce rates for all of their residents.
  • Offer increased access to public and private low-interest loans and grants to help homeowners and communities invest in flood-proofing measures.
  • Offer increased availability of public funds for voluntary home buyout programs in high flood risk areas.
  • Provide guidance and funding so FEMA can ensure the accuracy of flood risk maps, including taking into account sea level rise projections.
  • Explore options to raise deductibles in return for lower premiums.
  • Assess whether adjustments need to be made to lower the commissions collected by private insurers who issue NFIP policies. A report from the GAO has found that many of these companies are getting excessively compensated and the NFIP should improve its oversight of this.
  • Use taxpayer-funded disaster assistance to rebuild in a more resilient way.

These fixes could be implemented with a delay of no more than a year in the implementation of the Biggert-Waters Act.

Rising sea levels make insurance reforms even more urgent

Exposure to flooding risks is increasing along our coasts because growing development is putting more people and property in harm’s way. Sea level rise and worsening storm surge is further exacerbating those risks. In a 2013 report, the GAO called out climate change impacts as a source of growing fiscal exposure for the federal government on many fronts, including through the NFIP.

FEMA flood risk maps, even new ones just being released, do not include sea level rise projections. (They only include historical sea level rise.) The Biggert-Waters Act included a provision for a Technical Mapping Advisory Council to provide guidance to FEMA to update the maps to include sea level rise projections.

Investing in coastal resilience is going to require much more than insurance reform

It is not surprising that the biggest opposition to Biggert-Waters is coming from parts of the country that are most exposed to flooding and sea level rise, such as Florida and Louisiana. The higher risks here mean that rate increases are likely to be higher too. Coastal residents in these states are grappling with a very difficult and worsening problem. Increasing insurance premiums to reflect flood risks is an important but incomplete solution. We have to do a lot more, including making available the best scientific information and adequate financial resources to help these communities protect themselves.

Senators cannot legislate away sea level rise

Senators have the power to roll back flood insurance reforms but, as I’ve said in a previous blogpost, they cannot legislate away sea level rise. The sooner we all come to terms with the growing risks of climate change, the sooner we can focus on real solutions: investing in resilience and cutting our heat-trapping emissions.

Posted in: Global Warming Tags: , , , ,

About the author: Rachel Cleetus is an expert on the design and economic evaluation of climate and energy policies, as well as the costs of climate change. She holds a Ph.D. in economics. See Rachel's full bio.

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  • http://www.theseagypsyinn.com Scott Safford

    The Biggert-Waters act NEVER HAD AN AFFORDABILITY STUDY DONE. My rates went from $2,700 to $47,000 (on $150,000 in coverage)! Let me tell you what the economic impact is: A depressed housing market (which will cause a decrease in municipal revenue), inflation (people that do stay in business will increase their prices)and massive unemployment.
    The kicker in all this is people that pay cash for their homes will not pay in, but they will have their hand out when disaster strikes.

    A simple fix is to get the government out of this mess and let the free market decide. If you want to pay AFFORDABLE insurance, and there is a flood, you get paid. If you don’t pay in, then you don’t get paid.

  • Tim Haught

    Ridiculous! The author has no idea of the real consequences of Biggert Waters. It will destroy whole communities in the Ohio River Valley. My home was built in 1903. No owner has ever filed a claim. You might as well bulldoze my entire community, including our courthouse. While your at it destroy historic Marietta, OH and Wheeling, WV and virtually every community along the Ohio River. That will be real effect of Biggert Waters. People who have never filed a claim and never will should not have their rates increased as a result of a FEMA burearocrat. If this isn’t corrected, I suspect more homes and businesses will be destroyed by arson than flooding. How did we survive all the floods before FEMA. In the Ohio Valley we did just fine for over 100 years without flood insurance.

  • Martine Frederix

    Between 1978 and 2012 Florida has paid 4 times more in insurance premiums than it received in claims. In that same period, Georgia paid $ 814 million in insurance premiums and received $ 311 million in claims. NONE of the claims exceeding the premiums where in the Georgia coastal region.
    The big ticket items for FEMA where Katrina and Sandy. Sandy was a once in 400 year storm. Katrina did not flood New Orleans. The levees broke two days after the storm. The army corps of engineers had predicted this for years. Increasing insurance premiums are not going to solve this. Why can the Dutch protect their low laying lands and the US cannot? Our economy needs the Mississippi Delta and the workers who live there.

  • Jim Kalohn

    The affordability issue is huge. The base floor elevation is measured from a basement floor level which increase premiums significantly. Of all the properties located in a 100Year (1%) Flood Plain I think I’ve read that only 50% or less have flood insurance. I wonder if FEMA will study the impact of requiring all properties to have Flood Insurance instead of just those with mortgages. Also will they consider rates based on past flood history as well? Repetitive loss properties should pay more to encourage elevation or acquisition.

    • Alex Barna

      If you don’t have insurance, you can’t get a payout. Many people who don’t have insurance would have a rate so high that it doesn’t make sense so they self insure. If you force these people to get flood insurance, then you’re just adding to the risk they they will receive a payout.

  • harry lambdin

    I had my house sild this month until the buyers were quoted a rate of 5800 dollars for flood insurance I paid cash for my house and never took a flood policy out since I was in Zone X. No water was within 2-3 blocks of my house during the 100 years 1979 flood in Jackson Ms. In 2009 FEMA expanded the flood map to include my house and about 100 additional homes in to AE from X..I was depending on the sale of my home to help fund my retirement. The value of my house probably has dropped 40-50% due to this new flood policy No claim has been made on the house since its building in 1977 . Some type of grandfathering should be made on homes that have never had a claim and was in Zone x until 2009. It appears that FEMA arbitrarily redrew the flood lines. No houses on my street have ever flooded since the 1950, and now Fema is saying that 2-4 feet of water will be in my house at the next flood. Ludicrous

  • http://rtinkerinsurance.com Rick Tinker

    I am a Insurance Agent in Texas and in reguard to the pre-firm seasonal homes. These homes are not usually owned by the rich. They are middle class, many times second or third generation owners. The rich have torn down many of these homes and rebuilt them and pay lower flood premiums. If these houses have any type of damage, codes prevent them from being rebuilt below the flood plain. The pre-firm rate they are already paying is about 20 times per thousand higher than inland rates. If these homes are still below the flood plain it is because they have not ever had substantial damage,(of any kind), so this act is only going to raise rates on older homes that are not making claims and eliminate middle class seasonal “camps”.

  • Cathy Wolosin

    Biggert Waters is full of unintended consequences. By trying to set FEMA right (which really needs to be done with proper management–or they’ll keep going into deep debt) the bill absolutely kills the common homeowner. if you’re paying an annual bill of $1300 there’s a darn good chance your budget won’t be able to afford that bill if it jumps to $7000. An affordability study should have been done LONG before we got this far. And, yes, it had bipartisan support but that’s because THEY DIDN’T REALLY UNDERSTAND IT. Now you can hear plenty of legislatures who voted for it saying this is not what they understood would happen. Before we kill the common homeowner (not the rich beachfront homeowner, which is who I continually hear this bill is targeting, devastate coastal real estate and cause people to lose their homes, we need to pull back and institute a delay. I don’t feel you have a through understanding of what this bill does. I’m all for FEMA getting out of debt, but this isn’t the way.

  • Barbara Johnston

    The point of the NFIP is to provide AFFORDABLE flood insurance to people living in flood prone areas. Historically, most people live near their place of employment–flood insurance has made this possible for those of us who work in the large swaths of industrial centers of the country which happen to be located in low-lying areas. While I agree that new construction should be severely restricted to reflect the reality of climate change, those of us who currently live in flood prone areas should not be immediately slammed with rate changes which effectively put us out of our homes and cause our towns to become defunct. When the flood insurance on a $200,000 house (currently $2,500)is raised to $15,0000+ per year, that’s what will happen. Delay is necessary to allow this issue to be fixed.

    • http://www.ucsusa.org/about/staff/staff/rachel-cleetus.html Rachel Cleetus

      Hello Barbara, thank you for writing and I sympathize with your point of view. I agree that a short delay makes sense and my blogpost suggests a number of things Congress could do during that time to amend Biggert-Waters to address valid affordability issues and provide a measure of relief to home owners. My concern is that rather than fix legitimate problems, lawmakers may choose to just duck the real issue here: which is that we have a situation where a lot of people live and own property in areas prone to flooding (and where risks will likely increase over time because of sea level rise). Unfortunately, there are no easy answers but we can give people some options that help lower their risks. Substantially delaying action will only make things worse.

      • Mike in Florida

        Rachel,

        You seem to be a little misinformed. I live in a flood zone in Florida. You currently can not build a new structure or do significant improvements to an existing structure unless the lowest livable floor is above the Base-Flood elevation level (11 feet above sea level in my area).

        The issue is for those houses that were built before the Flood Insurance Rate Maps (FIRM) first went into effect in that area, so called pre-FIRM homes. Usually before 1970.

        My house was built in 1959, and never flooded. But the way the law has been implemented, if I sell my house, the new owner will have to pay around 14,000 a year for flood insurance. And my insurance is going up maybe 25% a year for the next couple of years at least.

        I think that a Pre-FIRM house should keep a subisidy until it is rebuilt or significant improvements are made. That’s not to say that the premiums should go up some, but not to 14,000 a year. I currently pay around 2,100. When I first bought the house back in 2005 (when the NFIP was still in the black), I paid less than 1,200 a year.

        And you keep talking about “Projected sea-level rise”. Just like the climate change folks back in 1998 were talking about the projected temperature rises only to find out that temperatures have not risen since 1998. You can’t increase folks flood insurance according to computer models that are based on faulty science.

        But I do agree with your solution to reduce the commissions that insurance agents get for these policies. Generally, the NFIP spends 56% of the premiums it takes in on administrative costs (including the commisions paid), so only 44% on claims. Contrast that with the fact that under the ACA, health insurance companies must spend 80% the premiums they get on claims.

  • Chase

    This article has clearly not truly investigated the affordability issues with this act. I am a coastal insurance agent in Mass. I have had people that bought pre-firm houses this past year had a policy for $3,500 then exceed 40k per year on the renewal thanks to this law. These are houses who’s first floor is near the flood plain, yet they have a basement and are significantly penalized for it (because rates are based off your lowest floor elevation). We have homes that are over 200 years old, never flooded yet have been through several hurricanes (the water never coming close despite significant storm surge), yet are now unsellable due to prices for new flood insurance exceeding 50k. This is unsustainable and bankrupting people. Spend one day in our office dealing with these new changes and you will be signing a different tune.

    • http://www.ucsusa.org/about/staff/staff/rachel-cleetus.html Rachel Cleetus

      Hello Chase, thank you for your comment and for sharing your experiences. The particular predicament you describe — those who purchased pre-FIRM homes just after passage of the Biggert-Waters Act and experienced an immediate increase to full risk rates last October — is fortunately not that common and there is definitely interest in Congress to provide relief to these homeowners in some form. I think it is possible to address this issue without gutting the entire program of reforms — for example by phasing in the increase more slowly.

      As you probably know, many pre-FIRM homes have long-benefited from subsidized insurance rates that do not reflect their actual flood risk. Biggert-Waters removes the subsidy and requires rates commensurate with the latest flood risk maps. One problem your comment highlights is that there is no requirement for mandatory disclosure of flood risk status prior to home purchase — that information may have helped in this case and should be made more broadly available in general.

      Finally, unfortunately for many coastal states like MA the past will not be a good predictor of future flood risks, given rising sea levels and worsening storm surges.

  • William Miller

    In my Colorado county there have been 3 flood damage claims made in 36 years. One was given a settlement. (The other 2 – water pipes that froze and broke or some such?) The one settlement was for $2487. Don’t know what year. This paid claim was not in my town. Again, this was for the entire county. Last year (before Biggert-Waters), my annual flood insurance premium was $1014. There’s “realism” and “true flood risk” for you.

    Interestingly enough, my new policy is due today – Jan. 15. Determinations have not yet been made concerning it. I wonder why?(irony). I’ll be in default tomorrow.

    • Aubrey Logan

      We live in a house in central Pennsylvania. The house is 80 years old and as far as I have been able to find, only 1 claim has been filed. Flooding hit the area and the basement took on a couple feet of water, ruining the furnace.

      Let’s put this into perspective. A new furnace is about $2,800 and the deductible on the policy is $2,000. So in 80 years, the NFIP has paid out $800 on our property. Before Biggert-Waters went into effect, the flood insurance was $1,200/ yr. In October, our flood rates went up nearly 700%, to $8262/yr. This more than doubled our monthly housing payment, and were facing foreclosure.

      Can anyone explain how an $8,262/yr premium reflects “true risk”? I agree with other complaints I’ve seen, that people living outside of flood zones should not have to subsidize flood insurance, but Biggert-Waters is not implementing “true risk” rates, they are gouging every homeowner with a flood policy, trying to suck us dry in order to pay their debt.

      We were lucky enough to find a private insurance company willing to write us a policy through Lloyd’s of London, and our new policy is $1616/yr. Although this is more than the original NFIP policy, we can continue to make our payments.

      • http://www.ucsusa.org/about/staff/staff/rachel-cleetus.html Rachel Cleetus

        Thanks you for writing, Aubrey. I appreciate the diversity of perspectives shared in the comments to this blogpost.

        I am, of course, not qualified to comment on your specific situation but it is possible that your property had previously benefited from subsidized pre-FIRM rates which were eliminated last October under Biggert-Waters. These are small fraction of overall NFIP policies, according to FEMA data:
        http://www.fema.gov/media-library-data/20130726-1910-25045-4019/bw12_impact_fs_04092013_natl_508.pdf

        Perhaps flood-proofing measures like elevating your home could help reduce the risks of the kind of flooding you describe — and they could simultaneously help lower your insurance premiums considerably.

        Unfortunately, the debt NFIP has accrued comes from a legacy of artificially low rates and some particularly bad, costly storms. That debt ultimately belongs to all of us taxpayers. Without significant changes to the program, it will only grow and threaten the survival of the program.

        Private insurance has a role to play, as it has in your case. But for most Americans NFIP will continue to be the sole source of flood insurance — it’s simply got to be fixed.

      • Heather Getkin

        Aubrey I am in North East PA and in a very much similar situation. When we purchased the home we did not need any insurance. Last January we were told that we needed to pay 1000 and our mortgage went up. This January we’re expected to provide them with $5000 and we will not be able to afford our mortgage after that. Please provide any contact information you have re: insurance company as our home has never had a claim in over 50 years. I fear an elevation certificate will not help as there is a creek on the property :/

    • http://www.ucsusa.org/about/staff/staff/rachel-cleetus.html Rachel Cleetus

      Thank you for writing, William. I hope a short delay in Biggert-Waters, and actions from Congress to fix it (without gutting it) along the lines I describe above, will provide some reprieve to homeowners like you and allow you to continue to protect your home with flood insurance.

      Parts of Colorado face serious risks of flash flooding, especially given the recent severe wildfire seasons that have left slopes burned, exposed and less able to soak in rainfall. Despite this reality, unlike you, very few Colorado homeowners purchase flood insurance as this article shows:
      http://www.usatoday.com/story/money/business/2013/09/16/flood-insurance-colorado/2823189/

      There are opportunities to lower NFIP premiums by taking flood-proofing measures — Colorado Springs just got a 5% reduction for all its residents through participation in the Community Rating System (CRS) program, and has achieved an overall reduction of 20% through its participation over time. See: http://www.springsgov.com/news.aspx?newsid=3276
      Would that be something your town would be interested in?

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