Many in Louisiana think flood insurance is broken. But what can be done about it?

Nov. 30—WASHINGTON — The future of flood insurance is in question — and not just because it has become unaffordable for many Louisiana residents.

The federal National Flood Insurance Program is $20.5 billion in debt. The 2024 hurricane season saw floods rage through mountain towns where few even thought about buying flood protection — leaving taxpayers, rather than policy holders, on hook for more than $100 billion in recovery costs.

In Louisiana, home and business owners fixate on dramatic price increases, driving many to drop their flood insurance policies.

Congress has punted reforming flood insurance seven times since 2017 and will again by Dec. 20, setting up a scrimmage next session. Democrats and Republicans agree on the need to help flood victims, but they are all over the place on just how to do it.

Get rid of federal flood insurance?

One idea is to do away with government-controlled flood insurance altogether, thereby leaving home and business owners reliant on the private insurance market.

That is being promoted by the Heritage Foundation's Project 2025, which purports to be the blueprint for President-elect Donald Trump's second administration. Though Trump distanced himself from Project 2025, authors of the plan include his aides, some of whom have been named to posts in the upcoming administration.

During the campaign Trump, said the disaster recovery issue would be tackled soon. At the same time, he has brought in billionaire Elon Musk and Vivek Ramaswamy to trim a third of the spending out of the federal budget.

Some in the insurance industry argues that private companies could provide better coverage at more reasonable prices.

Majority Leader Steve Scalise, a Republican from Jefferson Parish, said earlier this week that eliminating flood insurance won't be part of the solution. In his leadership role, he has significant say on which bill the U.S. House focuses,

NFIP covers about 4.7 million properties — roughly 5% of the nation's households — with $1.2 trillion in coverage. About $3.5 billion is collected each year in premiums.

"For many in southeast Louisiana and across the country, the National Flood Insurance Program is the only game in town when it comes to insurance coverage to rebuild in the wake of a storm," Scalise said. "While mitigation is key to flood protection, NFIP is absolutely vital to not only policyholders recovering after a storm hits, but taxpayers who foot the bill for disaster recovery. I will continue to fight and work with my colleagues to ensure the program remains affordable and solvent in order to protect against future storms."

Risk rating 2.0

Lowering premium prices by changing Risk Rating 2.0 is but one point in the growing debate.

Aimed at better aligning the price of a policy with the cost of damage, Risk Rating 2.0 in 2021 raised premiums in flood-prone areas to reduce NFIP's overall spending. While premium prices dropped for many, costs for others with homes and businesses already built in flood-prone areas rose sharply. For some, they became untenable.

National Flood Insurance Program Affordability

U.S. Sen. Bill Cassidy, R-Baton Rouge, said NFIP will soon fail, because so many policies are being dropped because of high prices.

In October, Cassidy distributed a report to his colleagues called "The Flood Insurance Crisis: A Comprehensive Breakdown of Rising Flood Insurance Premiums," that found NFIP premiums in Louisiana have increased by 234% over the past three years, resulting in 52,000 residents dropping their policies.

Cassidy White Paper, October 23, 2024

Cassidy will file a bill soon after the new Congress takes the oath of office in January and will work with the Senate Banking Committee to move the legislation through the process.

"He is a strong supporter of flood insurance. Ending flood insurance altogether would harm Louisiana residents," a spokesperson in his office said Tuesday.

Hoping to persuade his colleagues toward his version of reform, Cassidy already has made several speeches on the Senate floor.

"Americans in my state feel as though their government is not serving them the way it should," Cassidy said in a Nov. 18 speech. "NFIP is in desperate need of reform. It's needed reform for years."

Cassidy said FEMA's pricing methodology needs to balance affordability considerations with other concerns; share the actuarial information behind the prices, and reevaluate Risk Rating 2.0.

'All-hazards insurance'

One idea is to fold flood insurance into a program that would be created to cover all disasters, including wildfires, tornadoes, earthquakes and the like. Financial institutions and mortgage writers are among the supporters of this plan, which would expand the numbers of those needing policies, thereby better aligning policy prices with expected payouts for damage.

Cassidy agrees with the concept of all-hazard insurance — but that is not part of what he is proposing to revamp flood insurance.

U.S. Sen. John N. Kennedy, R-Madisonville, did not respond this week to requests for comment on flood insurance. But during an Aug. 20 speech to the St. Tammany Chamber of Commerce, according to WVUE-TV in New Orleans, Kennedy said that nearly 5 million flood insurance policyholders isn't enough.

Kennedy said he would support creating a national catastrophe fund that includes coverage for floods, fires and earthquakes.

"That's harder to do than it sounds, but you get 15, 20, 30 and 40 million people in a fund, you can spread the risk better than you can with only 5 million," Kennedy said.

Former U.S. Sen. Mary Landrieu, D-New Orleans, agreed in an Aug. 7 interview with Common Edge, a nonprofit "dedicated to reconnecting architecture and design with the public that it's meant to serve."

"The federal government subsidizes billions and billions and billions of dollars to farmers, when they suffer droughts and weather-related instances, yet they flinch when we say we need some subsidies to keep insurance rates lower," said Landrieu, now a Washington lobbyist. "So, one of my top-of-mind suggestions is an all-hazards insurance program that every homeowner in the country could pay into, over and above your homeowner's insurance."

Many insurance trade groups counter that such an all-hazards program would create the same problems as the NFIP.

The conservative Cato Institute argues that subsidized and underpriced flood insurance premiums fail to reflect the real cost of owning property in a way that private market would not.

"Privatization would not disproportionately hurt the working class. A fully private flood insurance market coupled with a targeted, means-tested subsidy would be much less regressive," a Cato report stated.

A strong critic of Risk Rating 2.0 pricing, U.S. Rep. Troy Carter, D-New Orleans, in November asked congressional leadership to take up a comprehensive disaster relief bill.

"We need federal action to ensure that our nation is not only prepared to respond to and recover from flooding disasters, but to adapt our systems and infrastructure to be more resilient and better able to weather any storm. We can't wait any longer," Carter said.

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