Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 with overwhelming bipartisan support in order to put the National Flood Insurance Program (NFIP) on sounder financial footing. The bill makes important changes to NFIP including more accurate flood zone mapping, changes to rates, and strengthening mitigation programs. Changes to these reforms would be a mistake and could endanger the program’s future stability. As explained below, the subsidy structure that has remained in place for 40 years should be phased out. However, to ensure a smooth and equitable transition to a sound NFIP, SmarterSafer supports the additional changes to the NFIP detailed below.
Possible Solutions: Instead of delaying all major reforms, Congress should consider the following changes to Biggert-Waters that continue to move the program to actuarial soundness while addressing real needs:
- Slow down the rate increases for properties impacted by new maps and home sales. Phase in risk-based rates so that households facing large premium increases won’t see their costs rise more than 25 percent in a year. Further, Congress should move the effective date of the home sale provision, so it only applies to homes sold after the law’s major provisions go into effect on January 1, 2014.
- Delay implementing new maps in areas where FEMA is assessing levee and other flood control systems. In areas where levees no longer provide 100-year flood protection, FEMA should be required to account for those levees and the level of protection they provide in both maps and rates. FEMA must not, however, delay any maps currently being considered for more than 18 months.
- Means Tested Assistance. Congress should require FEMA to establish a targeted, means-tested, temporary and paid-for premium support and mitigation fund to help homeowners of modest means who face affordability problems. However, this support should be outside of the rate structure—rates must be risk-based to provide policyholders with a true understanding of their risk.
- Affordability Study. GAO should conduct a study on how to address affordability more broadly, including how to prioritize mitigation and how households with true affordability issues can be helped. FEMA must also conduct its affordability study and report to Congress within 6 months.
- Focus on Mitigation. Congress should require FEMA to use a portion of its existing pre-disaster mitigation funding to mitigate properties impacted by flood insurance rate increases.
- Responsible Communities. Communities should be encouraged to undertake mitigation efforts through the Community Rating System (CRS). The CRS should also explicitly provide credit for natural, nature-based flood mitigation efforts. Congress should authorize FEMA to explore community-based insurance concepts that could benefit communities that invest in mitigation.
- Private Sector Participation. FEMA has missed numerous deadlines under Biggert-Waters, including a requirement that they look at purchasing reinsurance to better protect taxpayers. Congress should require FEMA to report within 6 months on its findings.
- Adopt levee vegetation policy by region. Many communities are now being told they have to purchase flood insurance due to the combination of remapping and levee decertification because of levee vegetation issues. Congress can address this issue by authorizing the Corps of Engineers to adopt a regional variance approach to regulating levee vegetation.
NFIP Has Faced Financial Instability Because It Subsidizes Insurance Rates, Regardless Of Individual Need:
- NFIP is currently almost $28 billion in debt to U.S. taxpayers with no way to repay the funds.
- Over 20% of NFIP policies are subsidized, regardless of need.
- Almost 70% of these subsidies go to properties with the highest property values.
- On the other hand, properties in the 30% of counties with the lowest home values receive less than 1% of the subsidies.
- NFIP’ artificially low rates have cost taxpayers billions, masked risk, encouraged people to live in dangerous places, and provided incentives that degrade natural infrastructure that provides a natural defense against flooding.
Most Rate Reforms In Biggert-Waters Are Responsible, Targeted, And Phased-In: Biggert-Waters makes reforms to NFIP that are necessary to move the program toward solvency. Most properties will only see rate increases as a result of updated maps – those phase-in periods may need to be extended to provide relief.
- Nearly all primary residential properties will continue to receive subsidies and will retain them until sale to a new owner, remapping, or a policy lapse
- According to FEMA, roughly 80% of NFIP policies (4.5 million) will not be affected by immediate rate increases – these properties will only face rate increases upon updated maps.
- According to GAO, less than 1% of primary residences will experience a rate increase due to Biggert-Waters until their communities are remapped.
Delays Will Increase The Financial Instability Of NFIP:
- Delays in rate increases will hurt most policyholders. Since FEMA has to collect a certain amount in premiums, subsidies will be funded by other policyholders who will pay elevated rates.
- Delay will increase NFIP’s deficit by continuing subsidies, even for policyholders who have the means to pay risk-based rates. GAO has found that NFIP collected $17 billion less than it should have over the last five years – a delay in implementing Biggert-Waters will continue the program on a path to insolvency.
- While there will be some rate increases as a result of new maps, some will have their premiums decreased or be moved out of mandatory purchase zones altogether. Delays will mean these property owners pay higher-than-needed premiums.
- Premium increases for vacation homes and homes taxpayers have already paid to rebuild more than once should not be delayed – these subsidies do not serve any legitimate public need.