Major changes in federal flood insurance program urged by U.S. Senate panel

WASHINGTON — Congress has spent more than six years avoiding its responsibility to reauthorize the National Flood Insurance Program, using a series of stopgap bills to extend the life of the program that has issued nearly 5 million policies.

The lackadaisical approach to brokering a five-year reauthorization of the program was one of several topics the U.S. Senate Banking, Housing and Urban Affairs Committee discussed Thursday during a hearing on challenges local communities have with flooding and the federally run insurance program.

"Flooding is the most common and costly natural disaster facing the country," said Ohio Democratic Sen. Sherrod Brown, chairman of the committee. "It's devastating to families and businesses and communities in every state."

The National Flood Insurance Program, he said, is not only responsible for writing policies for homeowners and businesses but for trying to mitigate the impacts of future flooding.

Scott criticizes outdated maps, lack of data

South Carolina Republican Sen. Tim Scott, ranking member on the panel, said that Congress must implement "substantial reforms" when it reauthorizes the NFIP.

"The program is financially insolvent with over $20 billion in debt," Scott said. "Instead of educating communities and homeowners on the risks they face, the program's outdated flood maps and lack of transparent data often obscures the risks."

The NFIP pays out about 30% of its "resources" to roughly 1% of "properties that consistently and repeatedly are flood victims again and again and again," Scott said.

"That's an opportunity for us to look to the local communities to create strategies to perhaps not rebuild there," Scott said, adding that Congress cannot allow the program to lapse.

Scott also noted that at some point lawmakers need to talk about a "comprehensive" approach to catastrophic events, noting that different regions of the country experience different natural disasters like wildfires, tornadoes and hurricanes.

"If you live in America, the fact is simple — we, the taxpayers, have paid out hundreds of billions of dollars over the last 10 years because of catastrophic occurrences," he said.

Lawmakers need to address how the size and scope of all natural disasters impacting homeowners and the economy, especially when the cost of repairing or rebuilding reaches a level that private insurance companies cannot handle, he said.

"Without that comprehensive approach, we really are missing the target by a mile," Scott said.

Louisiana flooding

Louisiana GOP Sen. Bill Cassidy said affordability of NFIP policies is becoming increasingly difficult for homeowners or businesses in particularly flood prone areas, including his home state.

"NFIP's new risk assessment policy called Risk Rating 2.0 has made flood insurance simply impossible to afford; in some cases policies rising over 1,000%," he said.

"At this point, we know that we're in an actuarial death spiral, where people will be dropping insurance because they can no longer afford (it); therefore a smaller number of people for whom to put on the risk. Therefore, more expensive premiums and therefore more people drop," Cassidy added.

Michael Hecht, president & CEO of Greater New Orleans, Inc., testified that the new pricing system for flood insurance has caused some premiums to increase substantially, leading to significant problems for people and business owners who need to operate along the coast.

Hecht told the committee that 50% of U.S. grain exports leave through the port of South Louisiana and that the new pricing should take that into account.

"If our workers cannot live there, this is going to have impacts on our ability to supply America and the world with food," Hecht said.

The Federal Emergency Management Agency, which manages the NFIP, projects that about 900,000 people will cancel their policies, representing a 20% drop in participants, he said.

Congress should take that into consideration when it reauthorizes the NFIP by requiring a "thorough and holistic analysis of economic impacts, mandating FEMA's transparency through the release of a usable public facing risk calculator and also a rating appeals process," Hecht said.

The cap on insurance premium increases should be lowered from 18% to 9%, he said.

Daniel Kaniewski, managing director at Marsh McLennan insurance company, told the committee that hazard mitigation is one of the more important things that Congress can do to address the costs of flooding and recovery.

"Not only does it protect existing homeowners against their existing risk, it helps protect homeowners in the future and … anyone else who purchases that home in the future against future risks," Kaniewski said. "It also gets at the affordability issue, because if you've reduced your risk, you should also be able to reduce your rates."

Flood insurance out of reach for some families

Steve Patterson, the mayor of Athens, Ohio, told senators that rising prices for some flood insurance policies will price them out of many families' budgets.

"In Athens and Athens County, the median household income is around $42,000, so it's much lower than the national average," Patterson said.

"It is a challenge to have that added burden, especially those who are living within the floodplains within the city and throughout the county," Patterson added. "It's going to be an exceptional burden on them to echo the already existing cost of living increases that we're all experiencing."

New Jersey Democratic Sen. Bob Menendez said that pricing people out of the National Flood Insurance Program creates issues for those homeowners if they eventually experience flooding as well as for the policyholders left in the NFIP.

"Insurance is about spreading risk, right?" he said. "The wider the pool, the less the costs. The smaller the pool, the higher the cost. And that drives people out at the end of the day."