NFIP Letter to Senate Committee on Housing and Urban Affairs

The Honorable Tim Johnson, Chair
Senate Committee on Banking, Housing and Urban Affairs
534 Dirksen Senate Office Building
Washington, D.C. 20510

The Honorable Richard Shelby, Ranking Member
Senate Committee on Banking, Housing and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20510

Dear Chairman Johnson and Ranking Member Shelby:

As a broad-based coalition of taxpayer advocates, environmental organizations, insurance interests and others, the SmarterSafer coalition is pleased that you have released a draft flood insurance reauthorization bill to help put the program on sound financial footing.

Our diverse coalition believes that to ensure the continued availability of flood insurance and to better protect taxpayers, both in and out of potential flood regions, the flood program is in need of systemic reform. For over 40 years, the federal government, through the NFIP, has provided significant subsidies for flood coverage. The risk of flooding has also not been adequately conveyed due to outdated mapping techniques and data. This has encouraged development in harm’s way and in environmentally important and sensitive areas; provides a disincentive to risk mitigation; and puts American taxpayers at significant risk. The program is now almost $18 billion in debt with all indications that FEMA will never be able to pay back taxpayers unless significant reforms are made. We offer the following recommendations for changes to your discussion draft:

We are pleased that the draft bill includes a provision from the 2008 Senate bill to establish a mapping council to help ensure that flood maps are accurate and up to date. However, we believe that the House bill, H.R. 1309 which was recently passed overwhelmingly in that chamber contains some important updates that we urge you to consider. The House provisions are similar to the Committee discussion draft but contain some important differences. The mapping council established by the House bill is not only advisory, but FEMA is required under the House bill to take into account certain proposals from the mapping council– FEMA is required to create maps with further gradation under the council’s mapping protocols. This will ensure that maps are more accurate and will be more gradated, reflecting real levels of risk. In addition, the House bill ensures that FEMA does not disregard un-accredited levees in its mapping. In most cases, an un-accredited levee still provides some level of protection, and our proposal requires that the level of protection from these levees be incorporated into maps and rates. This is critical in light of community and political opposition to the current protocol which essentially erases a levee from a map when it no longer provides protection from a 100-year flood.

- SmarterSafer commends you for addressing problems with mapping through an appeals process and through rate phase-ins. We are concerned with efforts to delay mapping or mandatory purchase of flood insurance. As you are aware, flood insurance is needed to ensure people can rebuild after a flood. The federal government should not mask or hide risks, but should work to ensure that all people and communities understand the risks they face. We appreciate your acknowledgment of this, and are pleased that you recognize that mapping delays are irresponsible and not in the best interests of those at risk of flooding. We are also pleased that the discussion draft recognizes the risks faced by people living in residual risk areas. While residual risk areas are protected by manmade structures, as you recognize, dams and levees fail and when they do the flooding that results can be catastrophic. Without flood coverage, people in these areas cannot access the funds they need to rebuild. We also support FEMA’s RiskMAP effort currently underway and requires such information to be included in future mapping efforts. Such information is helpful to risk management and planning efforts and includes information such as areas of floodplain fill and erosion zones and also areas of high natural resource importance including natural flood storage areas such as floodplains and coastal wetlands as well as other current land uses.

Rates and Subsidies
We are also pleased that the discussion draft phases out subsidies on many properties in NFIP, though we are concerned that a technical change may be needed to ensure the language is implemented as intended. To ensure the flood program can continue to provide needed coverage, subsidies in the program must be phased out. We urge you to go further and phase out all subsidies in the program so that the program can move to financial stability. Many buildings have continued to receive large flood insurance subsidies, despite having repeated claims that at times are cumulatively more than the structure is worth. At this time of large deficits, it is irresponsible to continue to provide deep subsidies for any property owner irrespective of need. Taxpayers are not only subsidizing those who cannot pay risk-based rates—they are subsidizing flood insurance rates for million dollar beach homes. By subsidizing those who can afford risk-based rates, the government is undermining the program while asking all taxpayers to provide unneeded subsidies. We urge you to move all properties to risk-based rates and provide explicit subsidies only to those who are in need—and to do so outside of the rate structure.

We are also pleased that the Senate has rejected the House proposal to increase the coverage limits and expand the program to additional coverages. While the program is in significant debt, the flood program should not be increasing its liabilities.

FEMA currently operates three mitigation programs, including one created by the Senate Banking Committee in 2004 to address severe repetitive loss properties. We are pleased that the discussion draft extends the severe repetitive loss pilot program; however, we are hopeful that the Committee will approve language included in the House bill that makes the program permanent and streamlines the three mitigation programs. This fiscally sound provision would streamline and make permanent the three key programs that help mitigate against flood damage and protect the environment while reducing unnecessary losses due to repetitive flood loss claims to the same properties. Repetitive loss claims cost the flood program an estimated $200 million per year. Not only is this a drain to the flood program, but repetitive flooding impacts the lives of thousands of Americans who are at risk and must rebuild time and time again. The provision included in the House bill will simplify the current programs that assist people in mitigating their risks. This is a fiscally responsible and cost effective way to lessen flood losses- a recent study by the Multi Hazard Mitigation Council shows that each dollar spent on mitigation saves four dollars in clean up and rebuilding costs.

We also urge you to include in the bill the recognition of the important role that floodplains, wetlands, and coastal areas play in storing and conveying flood waters and acting as a buffer during flood events. Protecting and restoring these natural systems provides reliable, cost-effective, and flexible flood protection. Many communities opt to use these approaches to augment traditional approaches like levees. We encourage the Committee to acknowledge these natural systems in the bill, just as they acknowledge the role of traditional flood control projects like levees and dams.

Authority to Purchase Reinsurance
We urge you to include language in the bill similar to the House bill allowing FEMA to purchase reinsurance to help ensure that taxpayers are protected and the program can continue to provide coverage to those in harm’s way. While the discussion draft circulated includes a GAO study on reinsurance, we believe this does not go far enough in putting the program on sound financial footing. The flood program is currently almost $18 billion in debt, and unless significant changes are made, federal taxpayers will continue to bail out the program. Private sector insurance companies rely on reinsurance as a way to access additional capital, lower costs, and lay off risk. In fact, GAO has found that reinsurance

is particularly important in the case of insurance for catastrophic events, because the availability of reinsurance allows an insurer to limit the possibility that it will experience losses beyond its ability to pay. NFIP’s lack of reinsurance, combined with the lack of structure to build a capital surplus, transfers much of the financial risk of flooding to Treasury and ultimately the taxpayer.

In order to protect taxpayers and the program, FEMA Administrator Fugate testified that reinsurance could help stabilize the program, and the House of Representatives not only approved this overwhelmingly but pointed to this specific provision as helping to better protect taxpayers and the program. We urge you to include language to allow FEMA to assess the feasibility of reinsurance and purchase reinsurance if it determines it is cost-effective and in the best interest of the program and those insured by NFIP.

Community-based Flood Insurance
We urge the Committee to support FEMA’s efforts to develop a community-based flood insurance option by authorizing a feasibility study. Local governments arguably bear the most important role in floodplain management because they are responsible for making land use decisions and their implementation, while individual property owners are required to bear the financial burden of those decisions through flood insurance and recovery after a flood. To remedy this paradox, a community-based flood insurance option would allow volunteering communities to opt for a flood insurance policy that covers all properties within a jurisdiction, and the local government would take responsibility for paying the premiums in a manner suitable to the community. The benefit of such a program is that communities would be able to take advantage of FEMA’s existing Community Rating System to reduce the community’s premiums by up to 45% based on the mitigation actions the community undertakes. Congress could support this effort by authorizing FEMA and GAO to undertake studies into the feasibility of such a project as well as giving FEMA authority to pursue community-based flood insurance through a voluntary, pilot program. These studies were included in the House bill that recently passed, and we hope you will consider including them in the flood reauthorization bill as it moves through the Banking Committee.

The flood program must be reauthorized so that we do not continue to face threats of gaps in insurance availability; however, any long-term reauthorization must be paired with meaningful reforms that ensure the program can continue to pay claims and safeguard communities and the environment without asking American taxpayers for a bailout. We look forward to working with you as you consider changes to NFIP.

(List of Coalition Members and Allied Organizations Attached)


Environmental Organizations
American Rivers
Defenders of Wildlife
Environmental Defense Fund
National Wildlife Federation
The Nature Conservancy
Republicans for Environmental Protection
Sierra Club

Consumer and Taxpayer Advocates
American Conservative Union
Americans for Tax Reform
Heartland Institute–Center on Finance, Insurance and Real Estate
Competitive Enterprise Institute

Insurer Interests
Allianz of America
Association of Bermuda Insurers and Reinsurers
Liberty Mutual Group
National Association of Mutual Insurance Companies
National Flood Determination Association
Reinsurance Association of America
Swiss Re

National Low Income Housing Coalition
National Leased Housing Association

American Consumer Institute
National Fire Protection Association
Taxpayers for Common Sense