Crapo crafts flood insurance reform

Sept. 17--The two major hurricanes that hammered Texas and Florida in recent weeks also highlighted the need to reform a federal flood insurance program that encourages homeowners to rebuild in flood-prone areas.

As chairman of the Senate Banking, Housing and Urban Affairs Committee, Sen. Mike Crapo, R-Idaho, has oversight responsibility for the National Flood Insurance Program, which provides insurance coverage for nearly 5 million policy holders and $1.23 trillion worth of property nationwide.

The program had been set to expire Sept. 30, unless re-authorized by Congress. However, a provision extending the deadline to Dec. 8 was included in the $15 billion Hurricane Harvey aid package that lawmakers recently approved.

Crapo said the short-term extension, coming at a time when Texas and Florida grapple with extensive flood damage, could lend weight to efforts to reform the federal program.

"There are a lot of pieces to this, but hopefully (Congress) will be incentivized by the fact that we're dealing with this in the face of a crisis," he said.

A third of all National Flood Insurance policies are for homes in Florida, which saw flooding along both coasts last week as Hurricane Irma moved up the entire length of the state.

Another 250,000 are for properties in Houston and Harris County, Texas, which experienced catastrophic flooding after Hurricane Harvey dumped more than 40 inches of rain on the area in August.

Damage claims from the two regions are just beginning to trickle in, but the program insured $70 billion worth of property in Harris County alone, according to statistics from the Federal Emergency Management Agency.

"Not all of those are going to be a total loss, but even at 15 percent, that's still more than $10 billion in claims," said Steve Ellis, vice president for Taxpayers for Common Sense. "In Florida, the program covers $423 billion worth of property."

Taxpayers aren't directly on the hook to cover any insurance losses. However, the program doesn't collect enough in premiums to satisfy all its claims; consequently, it's had to borrow nearly $25 billion from the U.S. Treasury over the years to stay solvent, and will likely have to borrow billions more in the wake of these latest storms.

With some members of Congress lobbying for the government to forgive those loans, advocacy groups like Taxpayers for Common Sense worry taxpayers eventually will have to pick up the tab.

Ellis also represents SmarterSafer.org, a national coalition of environmental, taxpayer protection, insurance and housing groups that's pushing for other changes in the federal program.

Flood insurance premiums, for example, don't reflect the actual cost of the home that's being insured; instead, they're based on the likelihood that a particular area will be flooded. This results in higher-priced homes being subsidized by lower-value properties, as well as encouraging development in floodplains.

"In the 1950s and '60s, all you'd see (in low-lying coastal areas) were little bungalows," Ellis said. "If they flooded, you'd open the door and run a hose in to clean them up."

Since the National Flood Insurance Program was created in 1968, he said, development in flood-prone areas has intensified, with larger, more valuable homes being built.

That's because federally backed insurance "made it financially safer to build in flood areas," Ellis said.

And unlike traditional insurance, filing a damage claim doesn't result in a premium increase. In fact, program critics note that about 1 percent of the policies are for "repeat claim" properties -- homes or buildings that have been flooded on multiple occasions. They account for about 30 percent of all damage claims, yet there's no mitigation requirement to help reduce the likelihood of flooding in the future.

Pricing policies to accurately reflect the level of risk and focusing more attention on mitigation efforts are some of the reforms SmarterSafer.org is pushing for. Longer term, it wants private insurers to play a bigger role.

Crapo agrees with that goal. He's just not sure Congress will go there in this next re-authorization.

"The politics of being able to achieve that level of reform in this next step would be very difficult," he said. Hurricanes Harvey and Irma, though, could "give momentum to the need to address reforms and facilitate a transition to private sector insurance."

Together with Ohio Sen. Sherrod Brown, ranking Democrat on the Banking Committee, Crapo introduced a Nation Flood Insurance bill in July that re-authorizes the program for six years. It also requires greater mitigation efforts in areas that are prone to repeat flooding, and directs the program administrator to start factoring a home's actual replacement cost into the premium calculations.

Ellis said the bill "doesn't go far enough." Given the six-year re-authorization horizon -- as opposed to the normal five-year re-authorization -- he'd like the committee to push for more significant reforms.

Crapo, though, said the bill simply represented areas where there was bipartisan consensus.

"It wasn't intended to be the final bill," he said. "I think we'll be able to include some additional provisions. But there's also pressure to move the other direction. The politics of this are still alive and well on both sides of the issue."

This typically wouldn't be of great interest in Idaho, which is one of the least flood-prone states in the nation. However, the Crapo-Brown bill also has language that includes "wildfires on federal lands" within the definition of a major disaster. That would make them eligible for federal disaster relief funding.

"It wouldn't change the way we fight wildfires, but it provides a funding mechanism so the Forest Service and Bureau of Land Management don't have to raid their budgets to pay for them," Crapo said. "When we have those (catastrophic fires), the funding would go through FEMA (the Federal Emergency Management Agency) to the Forest Service and BLM."

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Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.

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