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.