News Column

Congress Tries (Again) to Sustain the National Flood Insurance Program

May 13, 2014

By Jim McKay, Emergency Management

May 13--When researchers from the National Oceanic and Atmospheric Administration recently studied stream gauge records in the Northeast United States from the past 100 years, they discovered what many researchers have found in different parts of the country and world: an upward trend in the frequency and magnitude of floods. That was the case in the Northeast even with increased reforestation, which generally decreases flooding.

The researchers found that there has been a "wet mode" caused by North Atlantic Oscillation, the circulation of air currents along the North Atlantic Ocean, since 1970, resulting in an extra flood per year and that the trend will likely continue.

A study led by a World Bank economist and published in Nature Climate Change warned that the annual costs from flooding in the world's largest coastal cities could grow from about $6 billion to $1 trillion by 2050. Among the top cities listed were New York, New Orleans, Miami, Boston and Tampa Bay, Fla. But the study also said that some cities not on the list now will face increased risk in the future. And a 2013 FEMA report said areas in the U.S. at risk for floods would increase 45 percent by 2100, which could double the number of flood-prone properties.

That all adds up to more costs, which have already been increasing to the point that the National Flood Insurance Program (NFIP) can't keep up without major changes. The program is $24 billion in debt and that deficit won't be erased without reform. It also means that increased investment in mitigation efforts prior to an event is necessary before the costs of disaster become overwhelming.

The NFIP, it's been pointed out, wasn't necessarily set up with actuarial soundness in mind, but to encourage people to buy flood insurance. But in so doing, it has inadvertently encouraged development that is too close to water. The Consumer Federation of America (CFA) has said you can't lower prices by ignoring the risk of flooding and that real reform requires honesty about the risks of living in a flood zone. CFA called the National Flood Insurance Program an unwise and untargeted program that "encourages people to live in high-risk flood plains, unnecessarily risking people's lives and possessions."

Change initially came in the form of the Biggert-Waters Flood Insurance Reform Act of 2012, which attempted to eliminate federally subsidized insurance rates for properties with repetitive losses in flood zones, those that have been protected from risk-based rates by grandfathering and secondary homes, by moving toward risk-based pricing. It also sought to improve the accuracy of floodplain maps, among other things, to preserve the NFIP and shift more of the cost away from taxpayers and to property owners.

The CFA supported Biggert-Waters because it attempted to bring risk in line with flood insurance premiums. But the legislation had unintended consequences, namely boosting some premiums dramatically, which caught many homeowners by surprise. What the legislation failed to do was protect some of the poorer homeowners whose flood insurance would be skyrocketing. There are some real "horror stories," according to J. Robert Hunter, the CFA's director of insurance and former administrator of NFIP.

One example is a Florida man whose insurance on a $150,000 house went from $2,000 to slightly more than $20,000. "He is a laborer," Hunter said. "He said he bought the house in good faith. He was told what the premiums were but had no idea this was coming."

Hunter said he's worried about "Joe Sixpack," such as the man in Florida, who had already purchased the home, and not the person in a "zillion-dollar mansion." He said somebody like the Florida man should get a subsidy and that the risk for new homebuyers should be known. "I'm talking about when I buy a house or Joe Sixpack buys a house, he ought to know what the risk is."

Such horror stories led to the Homeowner Flood Insurance Affordability Act of 2013, signed into law by President Barack Obama in March, which delays implementation and addresses affordability. Lawmakers say the new legislation is intended to fix Biggert-Waters while also supporting its intent.

"I think there are solutions, but Congress has to figure out a way to take care of people who are really hurting but not slow down the movement toward soundness," Hunter said. "Target subsidies to help the people who really need it."

Chad Berginnis, executive director of the Association of State Floodplain Managers, lamented the "hysteria" surrounding Biggert-Waters and said there was a small percentage of policies that increased significantly. He would liked to have seen a more targeted legislative approach than what the House did with the new legislation, which was to undo a lot of the insurance part of the Biggert-Waters reforms.

"The one trigger that was causing the most pain across the country was the trigger to full-risk rates upon the sale of a home or a new policy," Berginnis said. He added that there should be targeted relief, such as vouchers for lower-income people or a low-interest mitigation loan program that doesn't require payment until the home is sold. Also, eliminating the full-risk trigger and putting policies on a longer implementation schedule would decrease the pain.

The Homeowner Flood Insurance Affordability Act of 2013 lowers the rate increases on some policies and prevents increases on other policies, according to FEMA's website.

The act also repeals some rate increases that had already gone into effect and refunds those policyholders. In addition, it authorizes more resources for the National Academy of Sciences to do an affordability study and requires FEMA, which administers NFIP, to prepare an affordability framework.

The new law also calls for gradual increases in rates on properties that now have artificially low rates instead of the immediate full-risk increases that were seen under Biggert-Waters. Premiums for most properties will not be allowed to increase more than 18 percent per year. The exceptions include older business properties, older non-primary residences and repetitive loss properties.

FEMA was in the process of developing plans for implementation at press time, but Dave Miller, FEMA's associate administrator for the Federal Insurance and Mitigation Administration, said the first step is to restore the subsidized rates for renewal and new policies. That will avoid the huge rate increases seen under Biggert-Waters as no increase will be more than 18 and a half percent under the new law. "We've started the process of stopping those huge rate increases that went from zero to the full risk rate," Miller said. The next step will be to refund those whose had the higher premiums, he said.

"Congress still wants us to talk about risk and what that dollar statement of risk will be, and that's a look at the actuarial tables," Miller said. "We're going to relook at actuarial tables because it has to do with what rate we charge, the methodology." Miller said homeowners will understand their full risk so that they and the community can take steps to mitigate those risks over time. "They'll see the full actuarial rate and the increase. It's important they know what their full risk is."

Another factor in the reform of the NFIP is that the older floodplain maps underestimated risk and some of the newer maps missed their mark in terms of accuracy, according to some.

Fingers were pointed at FEMA for a flawed implementation after the unintended consequences of Biggert-Waters because the flood maps were said to be inaccurate. Hunter said legislators knew that or should have known there were problems with the maps when they passed the bill.

Rep. Maxine Waters, one of those blaming FEMA for a flawed implementation of Biggert-Waters, said the mapping was inaccurate and the information incomplete. FEMA Administrator Craig Fugate has said his agency is consistently releasing new data and updating the maps to help communities make better decisions about flood risk.

"For at least a decade, I've been testifying that the maps are a mess," Hunter said. "They knew that the maps were being fixed and that would cause large jumps in premiums." That's because floodplains change and elevations go up with development. When you develop and make parking lots and houses, there is nowhere for the water to go. "Think of it as a bathtub," Hunter said. "You sit down in it and the water goes up. You put houses in a floodplain and the water goes up."

Hunter cited studies in Jackson County, Miss., where the average map was 20 years old. He said the average elevation on the maps was 10 feet too low and developers were building homes they thought were safe. "People who thought they were five feet above the 100-year flood were actually five feet below, and they didn't buy insurance. The program encourages unwise construction through maps that are inaccurate and always biased low."

The NFIP was initially set up to encourage people to buy flood insurance, and to do that, it had to be affordable. "The other side of that," Berginnis said, "is that people need to recognize and understand that if you build in high-risk areas, you will probably be the one who is supported by the NFIP more so than somebody in a less risky area."

The Biggert-Waters legislation sought to make flood insurance rates commensurate with risk and also kept rates in line with mapping changes. In other words, if a new map shows increased risk, the insurance would go up. It phased out grandfathering. That raised the ire of some, who with new maps, found themselves in a floodplain when they weren't before.

Berginnis said Congress was smart to recognize the need for a national flood mapping program but needs to fund it. "Luckily the backtracking was done only on the insurance side of it and the flood mapping program was pretty well left alone," he said. "Unfortunately that very same Congress hasn't been willing to appropriate that kind of funding subsequent to Biggert-Waters."

Berginnis said there is a misperception about an inherent inaccuracy in flood maps. He said that with today's standards and technology, you can map a given area for $10,000 or $100,000 and buy a more precise map. For instance, lidar adds cost to the process but makes for a more precise map. "It doesn't mean that something cheaper will get you a bad map, but if you want to go down to a very specific parcel level, you have to invest more money to get that better granularity."

He said FEMA and states have to decide what level of precision they can afford. "And so what we're faced with nationally is a flood mapping program that is chronically underfunded, and it's our biggest hazard."

Berginnis would like Congress to forgive the NFIP's $24 billion of debt. He said interest rates are at historically low levels and when they go up, NFIP will be spending all its money on interest payments instead of paying claims and running mapping and insurance programs.

When North Carolina set out to update its flood maps in 2000, it found that more than half of the maps (55 percent) were at least 10 years old and 75 percent were at least 5 years old. The state wanted to make sure the new maps were accurate for both floodplain management purposes and for flood insurance rates and thus chose to do its own mapping, according to John Dorman, program director for the state's Floodplain Mapping Program.

North Carolina is a Cooperating Technical State, part of FEMA's Cooperating Technical Partner program, which is an effort that allows local communities to participate in the mapping to help take some pressure off FEMA. The program allows the locals to choose how specific to get with the mapping and invest in newer technology, such as lidar.

"At the time, FEMA would not have done lidar. They would have used the existing elevation data," Dorman said. "Lidar was new at the time, and FEMA is typically behind on new innovations. They've got to make sure that something is business validated before they integrate it into their processes."

Miller said states can benefit by doing their own mapping. "There's a great chance they have more granular data on information than we do," he said.

In collecting the data, North Carolina realized that other agencies might benefit from the data and developed partnerships, which saves the state money in the long run. For example, the U.S. Geological Survey and other federal agencies are seeking new elevation data across the country for a project, called Elevation for a Nation, but are having difficulty finding funding so they've developed a partnership with North Carolina.

"Our cost of doing this new-quality level-two elevation project is about $19 million to $20 million to go across the state," Dorman said. "We've already gotten commitments from other agencies with other processes and dollars to get the data."

The new data offers a more in-depth look at risk and what the damages would be for different flood risk frequencies. For instance, the data can show the risk for a particular building for 10-year, 25-year, 50-year, 100-year and 500-year floods, how much water would be involved and how much it would cost to rebuild. North Carolina, along with FEMA and others, is working on a study that examines revising insurance rates based on whether the flooding was a 10-year or 50-year event and so on.

That would be one way to revise rates. Another would be to have mitigation as a component of every insurance policy. The Homeowner Flood Insurance Affordability Act of 2013 added a surcharge for every flood policy to pay for the existing subsidies. The surcharge would be put in reserve.

Berginnis suggested that instead of putting money away for future claims, why not collect the money and use it for mitigation to avoid future claims. "Congress is doing nothing about mitigation," he said. "You can elevate homes and businesses; you can flood-proof them to lower costs and reduce rates."

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Source: Emergency Management