No Easy Fix on Flood Insurance, but Options Exist
There's no easy fix for the National Flood Insurance Program, now drowning in a $24 billion sea of red ink.
But experts and advocates say Congress does have some options that could make the troubled program financially stable, more affordable and more effective at motivating change in communities built too close to the water.
Lawmakers this month tweaked the troubled program for the second time in two years after acknowledging that a previous overhaul in 2012 had socked too many policyholders with rate hikes they couldn't afford. The legislation, however, only put off the day of reckoning.
At least 1.1 million policyholders are still likely to see insurance premiums rise substantially in the next few years as the government whittles down rate subsidies for people in the riskiest flood zones. The Associated Press, in a story published Monday, found hundreds of river towns, port cities and coastal communities where future rate hikes might make it tough for people to keep their homes and businesses.
Yet, if premiums stay as low as they are now, those same communities could cost taxpayers billions of dollars when they do eventually flood, thanks to decades of low premiums that have given homeowners few incentives to flood-proof their properties.
Congress acknowledged the problem, but offered no solutions, in the stopgap measure signed by the president Friday. The law gives FEMA 18 months to complete an already-overdue study on flood insurance affordability and up to 36 months to find a way to offer targeted assistance to policyholders who can't afford high premiums. It also said FEMA should set a goal of limiting annual premiums to no more than $2,500 per year for $250,000 in coverage, but didn't offer any suggestions on how to do that without bankrupting a program that already charges far more than that for many policies.
That affordability proposal would be due just before the flood insurance program is up for congressional reauthorization in 2017.
One potential option promoted by some experts would be to make low-interest loans available to help people elevate their homes above the high-water mark.
In several papers last year, Carolyn Kousky, a researcher at the environmental science group Resources for the Future, and Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, proposed a system in which property owners could get vouchers offering relief from high premiums in exchange for raising their homes up on pilings, a high foundation or other supports. The amount of the voucher, which could also cover a slice of the loan payments, would be tied to the owner's income.
Elevating homes can be costly, with prices ranging anywhere from $40,000 to well over $100,000, but doing so could actually save money in the long run for both the homeowner and the government, they argued. Loan payments for the building owners would be significantly less than what they would otherwise have to pay in exorbitant insurance premiums.
The government would, in the long run, avoid paying costly insurance claims that can often exceed the cost of elevation. After Superstorm Sandy, for example, the National Flood Insurance Program wound up shelling out $7.9 billion in claims payments, with an average payout of just under $55,000.
An approach like that one has been favored by groups like the Union of Concerned Scientists, which has been trying to sound the alarm about the threat of more flooding in the decades ahead due to global warming. Rachel Cleetus, a senior climate economist with the group, said she hoped Congress would use the time between now and the 2017 reauthorization vote to come up with a system that favors mitigation over simple rate relief.
"We could have been spending our resources better than helping people entrench in these really risky areas," Cleetus said.
The Association of State Floodplain Managers has also advocated for an income-based voucher system, as well as rate reductions for mitigation that stops short of full elevation of a home, like moving home heating and electrical equipment to less vulnerable parts of a house or installing water-tight doors and windows.
FEMA already has some mitigation grant programs available, but they often have their greatest impact in areas already rebuilding from a catastrophic flood.
Some politicians and policymakers in flood-prone states have proposed legislation that would give tax incentives to property owners who created catastrophic savings accounts, where property owners could put money aside to cover expected damage from future natural disasters, and also for the purpose of reinforcing a house against potential damage in a flood, earthquake, fire or tornado.
George Kasimos, a founder of the advocacy group Stop FEMA Now, said Congress should be given credit for responding to constituent concerns and passing this month's rate relief bill, but he said greater reforms are needed to avoid a crisis in the long run.
The new law is "the best deal we can get, basically," he said. "All that's really being done is it's being kicked down the road. Hopefully, in three years, we can get a real fix."