American Property Casualty Insurance Association Issues Public Comment on FEMA Notice

WASHINGTON, Sept. 23 -- Michael Richmond-Crum, manager for personal lines and counsel at the American Property Casualty Insurance Association, has issued a public comment on the Federal Emergency Management Agency notice entitled "Request for Information: National Flood Insurance Program's Community Rating System". The comment was written and posted on Sept. 22, 2021:

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On behalf of the members of the American Property Casualty Insurance Association (APCIA), thank you for the opportunity to provide comments and feedback to help improve understanding of flood risk within the Community Rating System (CRS) program, incentivize communities and policy holders to become more resilient by lowing flood risk vulnerability, and support the financial framework of the NFIP. We submit for your review our observations and recommendations to assist FEMA in accomplishing the objectives of the NFIP, to provide flood insurance to properties with significant flood risk and to improve community participation in flood resiliency and mitigation efforts. We wish to thank you for your consideration of our observations and recommendations and look forward to working with you in the future.

Representing nearly 60 percent of the U.S. property casualty insurance market, APCIA promotes and protects the viability of private competition for the benefit of consumers and insurers. APCIA represents the broadest cross-section of home, auto, and business insurers of any national trade association. APCIA members are actively engaged in providing flood insurance products to property owners, accounting for 76 percent of NFIP WYO sold polices, and 85 percent of private flood polices in 2020, totaling more than $2.9 billion in direct written premiums. APCIA members represent all carriers of all sizes, structures, and regions, protecting families, communities, and businesses in the U.S. and across the globe.

With over 3.6 Million policy holders -- accounting for more than 70 percent of all NFIP flood insurance polices -- the 1,250 CRS communities are an integral part of national efforts to mitigate the damage floods inflict on homes across the country./1

According to the National Academy of Sciences study published earlier this year, total flood damage from 1988 through 2017 was nearly $200 billion, with changing weather conditions such as increased precipitation contributing $75 billion in damage in that time period./2

The most significant and important impact of flooding is the loss of life, a fact we have been so recently reminded of with the loss of as many as 82 lives in the United States as a result of Hurricane Ida, many of whom died of precipitation caused flooding./3

As the waters subside and rebuilding efforts begin, the devastating loss of homes and property come into focus along with the long-term financial impacts to communities and individuals.

As planning and modification of the CRS program are undertaken, we are mindful that flooding along with other natural catastrophes have been shown to disproportionately impact minority and vulnerable communities due to longstanding systemic inequalities concentrating populations in high-risk areas./4

Recent history has shown that direct and cooperative action is needed as the number and severity of disaster related events is increasing, with flooding events being the most common of such disasters./5

Between 2017 and 2019 there have been 44 events with damage greater than $1 billion, with 14 events in 2019 and 2018, tied for the most such events on record./6

There is no reason to believe that these trends will subside with increasing evidence that changing climate conditions are contributing to the frequency and cost of flooding events./7

To contribute the FEMA's efforts to improve the CRS program, ensure the affordability and continued availability of flood insurance to property owners in flood zones, incentivize resiliency at the community level, and support the financial framework of the NFIP, APCIA offers the following question responses: Question 1: What are the strengths of the current CRS program? What components of the program are currently working well and why?

APCIA believes that the CRS program's most effective and important contribution to responding to national flood issue is its effectiveness in increasing adoption of flood insurance. With more than 69 percent of all flood insurance policies coming from CRS communities, FEMA's CRS outreach efforts to target, educate, and incentivize action in those communities is demonstrated to work where the program is adopted.

The current framework utilizing a class rating system based on four creditable activities: public information gathering and dissemination; mapping and regulations adoption; flood damage reduction; and flood preparedness is an effective structure around which a holistic response to flood risk is being implemented throughout the country.

With this holistic framework, CRS programs are not only an integral part of the NFIP but also a vital part of FEMA's resiliency and mitigation efforts along with Building Resilient Infrastructure and Communities (BRIC) and Hazard Mitigation Assistance Grants. CRS efforts to mitigate flooding and promote NFIP stability should continue to be an integrated part of FEMA's comprehensive resiliency and mitigation efforts countrywide.

Question 2: What are the challenges with the current CRS program that need to be addressed and why? How can the CRS program be modified, expanded, or streamlined to better address or resolve these challenges?

APCIA believes that the most significant challenges of the current CRS program are the obverse of its most effective qualities. CRS communities not only take direct action through adoption of creditable activities, but the insurance uptake rates in those communities is also significantly higher than other communities. Only 5 percent of the 22,000 communities participating in the NFIP are CRS communities. Because more than 69 percent of all flood insurance policies are written in CRS communities, increased participation is an effective means of protecting homeowners and communities./8

APCIA believes that an increase in the number of CRS communities, resulting in greater quantities of flood insurance policies being purchased will have the benefit of increasing the spread of risk, making the peril of flood more readily insurable. This in turn will reduce loss ratios over time and motivate additional insurance carriers to offer flood insurance in the future, increasing capacity and helping to reduce premiums. Increased participation in CRS programs can be achieved through greater focus and financial support by FEMA on outreach and education of exiting incentivization.

Virginia provides an illustrative example of the opportunity to increase community participation. Virginia is situated between the Appalachian Mountains and the Atlantic Ocean with hundreds of miles of coastline along the Chesapeake Bay. The state encompasses almost every topographical feature which may be considered to contribute to flooding events, and a large majority of its population lives in close proximity to the state's coasts and rivers. Of the 290 NFIP communities in Virginia, only 27 participate in the CRS program. And yet, almost 80% of all flood insurance policies in Virginia are written in that minority of CRS communities./9

The interrelationship between flood risk, community involvement, incentivization and insurance coverage is clear, and increased involvement in CRS programs by NFIP communities will help protect vulnerable communities in the future.

Voluntary participation in CRS programs lends itself to greater local community investment on supported activities, however greater encouragement by FEMA as well as state and local jurisdictions will be necessary to grow CRS program participation. FEMA should provide greater financial and personnel resources into communicating the benefits of participation to community and state decision makers.

Additionally, APCIA believes that modification of creditable activities to reflect current priorities will be needed to help change behavior of the current, and hopefully growing number, of CRS Communities. Among the modifications which should be made is that Activity 370: Flood Insurance Promotion, should be given greater weight in determination of CRS class rating. According to the 2017 Community Rating System Coordinators Manual only 110 points are available to communities for "assessing flood insurance coverage in the community and implementing a plan to promote flood insurance."/10

Even more discouraging is that only 4% of participating communities were credited with this activity with 39 points earned on average./11

These numbers demonstrate that insurance adoption has been largely sidelined by decision makers in the CRS programs despite the significant benefits to individual property owners, and the NFIP as a whole.

While APCIA makes no recommendations of how the entirety of the allocation of points within the CRS class rating system should be structured, we do believe that adjustments should be made from time to time, and that increasing the available point allocation for Activity 370 - Flood Insurance Promotion, should be include in those changes.

Question 5: How could the CRS program better address the mitigation of repetitive loss/ severe repetitive loss / properties and how could FEMA further leverage the CRS program to achieve mitigation of repetitive loss/severe repetitive loss properties?

The problems presented by repetitive loss properties to the NFIP have shown themselves to be difficult and incredibly costly with just 1 percent of properties within the NFIP accounting for about 25-30 percent of flood claims./12

While it is clear that no single solution from any one actor is capable of resolving the issue, APCIA supports the CRS program prioritization of Activity 520: Acquisition and Relocation, to acquire and/or relocate flood-prone buildings so that they are out of the floodplain. With an allocation of 2,250 possible points, it is rightfully one of the leading priorities of the program. Additionally, APCIA appreciates efforts to remove severe repetitive loss properties through grant programs and believes that continued support for those programs is a worthwhile use of funds.

We recommend that Activity 520: Acquisition and Relocation, should be evaluated in a comprehensive manner which accounts for improved construction within floodplains and SFHA. Activity 520 adjusts the credit-based points through the ratio of the number of buildings cleared out of the regulatory floodplain to the number of buildings remaining in the SFHA, allowing for point allocations to decrease because of new construction./13

APCIA believes that qualitative as well as quantitative measurements should be incorporated into Activity 520's point credit determinations. FEMA's current utilization of the 'substantial improvement' determinations already reflects how construction quality can affect relative risk to individual properties impacting community eligibility in the NFIP.14 FEMA should evaluate how qualitative assessments can be used to mitigate the potential negative impact on credits with the CRS program to better reflect a community's risk exposure.

Question 6: How can the CRS program be modified, expanded, or streamlined to best incentivize participation by communities and flood insurance policyholders to become more resilient and lower their vulnerability to flood risk?

APCIA recommends greater attention and resources should be provided to encourage more in-depth participation by communities in Activity 330: Outreach Projects. While 93 percent of communities participating in CRS programs are credited with receiving points, the point total in the 2017 Community Rating System Coordinators Manual shows that the average points earned by communities is 87. This significant difference in participation rate and depth of participation signals an opportunity to increase the degree of involvement through outreach projects.

As is often discussed in issues surrounding flood damage prevention, understanding flood risk is fundamental to preparedness, and most individuals and communities underestimate their risk. They often underestimate the likelihood of a flooding event, and the amount of damage a flood can cause. Additionally, many individuals falsely assume that public assistance money provided by FEMA and other public organizations after natural disasters will be more substantial than it is. This in-turn disincentivizes resiliency efforts and insurance adoption by individual property owners. The "boots-on-the-ground" nature of the CRS program and the demonstrated involvement of CRS communities provide an opportunity to increase accessibility and understanding of available flood risk information to individual property owners who need it most.

We believe that an increase in emphasis on outreach projects constitute "low hanging fruit" for communities to improve their classification. FEMA's educational efforts related to CRS participants should highlight the availability of improvement in this area.

Additionally, APCIA believes that Activity 360: Flood Protection Assistance, which gives points for "advising property owners and renters about how to protect buildings from flooding and publicizing that service" should be increased in weight and significance in total point allocations. With only 110 points available, communities are likely overlooking one of the most direct and significant ways to mitigate flood damage and its financial impact./15

Home and building protection can often be undertaken with small and relatively inexpensive steps readily within reach of property owners./16

With a relatively low point allocation, CRS participants are likely overlooking the potential impact that adoption of property specific protection measures can have when flooding events occur. APCIA recommends that FEMA reassess the points available for Activity 360: Flood Protection Assistance, and significantly increase its value relative to the other activities.

We appreciate the opportunity to provide you with input to strengthen FEMA's efforts to modify and improve the Community Rating System, so that homeowners and communities across the county are safer and more secure. APCIA and our members are deeply engaged in overcoming the challenges presented by catastrophes occurring in greater frequency and severity present to our country. We look forward to working with you to build more resilient communities and thank you for your consideration of these comments.

Sincerely,

Michael Richmond-Crum

Manager, Personal Lines & Counsel

American Property Casualty Insurance Association

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Footnotes:

1/ https://www.fema.gov/fact-sheet/community-rating-system

2/ https://www.scientificamerican.com/article/rising-costs-of-u-s-flood-damage-linked-to-climate-change/

3/ https://www.cbsnews.com/news/hurricane-ida-death-toll-update-82-louisiana-northeast/

4/ https://www.scientificamerican.com/article/flooding-disproportionately-harms-black-neighborhoods/

5/ https://www.who.int/health-topics/floods#tab=tab_1

6/ https://www.climate.gov/news-features/blogs/beyond-data/2010-2019-landmark-decade-us-billion-dollar-weather-and-climate

7/ https://www.scientificamerican.com/article/rising-costs-of-u-s-flood-damage-linked-to-climate-change/

8/ http://www.fbfl.us/DocumentCenter/View/17848/NFIP_CRS_Fact_Sheet_2017_508OK?bidId=

9/ https://www.dcr.virginia.gov/dam-safety-and-floodplains/fp-crs

10/ https://www.fema.gov/sites/default/files/documents/fema_community-rating-system_coordinators-manual_2017.pdf

11/ Id.

12/ https://www.pewtrusts.org/-/media/assets/2016/10/repeatedly_flooded_properties_cost_billions.pdf

13/ https://www.fema.gov/sites/default/files/documents/fema_community-rating-system_coordinators-manual_2017.pdf

14/ https://www.fema.gov/pdf/floodplain/nfip_sg_unit_8.pdf

15/ https://www.fema.gov/sites/default/files/documents/fema_community-rating-system_coordinators-manual_2017.pdf

16/ https://disastersafety.org/flood/protect-your-home-from-floods/

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The notice can be viewed at: https://www.regulations.gov/document/FEMA-2021-0021-0001

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