Risk-Priced Insurance: Making Housing Smarter and Safer
Flood Insurance Principles
Background. The National Flood Insurance Program (NFIP) is seriously broken and in need of substantial reforms and improvements. While the NFIP provides flood insurance for millions of homes and businesses, it has fundamentally failed to keep pace with and to adequately discourage buildup of flood risks and damages across the nation. Subsidized insurance rates and failure to mitigate large losses from repetitively-flooded properties continue to underwrite building and rebuilding in high-risk floodplain locations. The program has not adequately accounted for the increased frequency and severity of major storms and hurricanes, due in part to land development, changing climates and rising sea-levels. Subsidies in the NFIP and continued repetitive losses have contributed to the deterioration and loss of important floodplain and coastal habitat areas and the decline of valuable and sensitive ecosystems.
Additionally, the NFIP is $19 billion in debt. With annual revenues of only $3 billion, there is no possibility that the NFIP will be able to repay the debt from program revenues.
SmarterSafer offers the following basic principles to help guide future reform efforts
Mapping: Flood maps need to be modern, accurate, and based on the best available science and the NFIP must have accurate maps that reflect true risks. Neither Congress nor any agency of the federal government should delay the use of any completed map or take any action that suspends any mitigation, purchase, building or other mandates associated with the implementation of a revised map or decertification of a levee. The federal government must be honest about risk and should not mask changes in mapping and risk determinations. However, under certain circumstances, areas significantly impacted by changes in mapping or the decertification of levees, should be eligible for phase-ins of actuarial rates at a slower rate than the rates applied to other properties. Lower-income homeowners living behind decertified levees and in areas mapped into special flood hazard areas might also be made eligible for assistance including partial or temporary assistance to pay premiums, tax credits, and vouchers.
Actuarial Rates: The NFIP must be based on actuarial rates. For years rates have been subsidized; these rates should be increased, in a phased-in manner, to reflect true risk. Under any phase-in program, rates should increase every year during a reauthorization period for the overwhelming majority of properties currently paying non-actuarial rates. We support efforts to raise the cap on the maximum yearly increase in rates from 10 percent to 20 percent so that the flood program can be put on sounder financial footing and be able to pay claims.
Risk Mitigation: The NFIP must be based on a strong commitment to manage and reduce flood risks. These include: incorporating wise floodplain management to increase resiliency; establishing standards which minimize flooding risk and anticipate and manage for future conditions; requiring location of new construction out of harm’s way and mitigation or relocation of structures experiencing high-risks or repeated flooding; and the distribution of accurate and accessible information to the public about flood risks.
Manage Floodplains to Protect Environmental Values: Many environmentally-sensitive areas are associated with floodplains, wetlands, shorelines, coastlines and coastal barrier islands that protect and buffer from flood and storm surges, protect water quality, recharge groundwater, and provide recreation and wildlife habitat. The NFIP should not subsidize and incentivize development in such areas, leading to the loss of these valuable natural services, increasing disaster costs and reduced public safety.
Pilot Programs: The NFIP should encourage and partner with the private sector to provide or partially provide flood insurance through private insurance. This should not result in net additions to NFIP’s debt but, instead, should allow private companies to assume some or all of the risk for insuring properties against flood damages in certain areas. We prefer that FEMA work with the private sector in multiple regions and allow for flexibility in the design of any public-private program.
Making Housing Smarter and Safer
Statement of Principles
Communities across the country face risks as a result of natural disasters—floods, hurricanes, earthquakes, fires, mudslides, and tornados.
Low-income families and communities are most impacted by natural disasters: housing is older and less likely to be built to withstand storms or other damage; damages often go unattended, leaving housing stock more vulnerable to future disasters; low-income families are least likely to be able to afford mitigation measures; low-income families are most affected by displacement, and do not have the means to rebuild. Communities of color also bear a disproportionate impact.
Spending on mitigation is cost effective—for every $1 spent on mitigation, $4 is saved—less work after a disaster.
For these reasons, federal, state and local policies should encourage and provide incentives for making housing, specifically affordable housing, better able to withstand nature’s wrath.
- Pre-disaster, preventative measures should be improved and included in any government disaster planning. While post-disaster recovery measures are important and must be better managed, the best way to help people is to protect their lives and property before disaster strikes.
- Existing pre-disaster programs focus on community-wide measures, but more must be done to help individuals protect themselves.
- Existing pre-disaster mitigation grants cannot be targeted to those who most need assistance. Instead, scarce federal dollars should be spent on those families and communities that cannot otherwise afford to protect themselves.
- New funding for housing and energy efficiency should include flexibility to ensure retrofits and upgrades are done to withstand natural disasters.
- Weatherization and Energy Efficiency Block Grant eligibility should include and encourage mitigation measures. Installing energy efficient products that cannot withstand known risks is wasteful, and weatherization and mitigation should go hand-in-hand in disaster-prone areas.
- Capital expenditures and financing mechanisms for affordable housing—new construction and rehabilitation—should include mitigation.
- Preservation of affordable housing should include mitigation measures so that the housing can withstand a disaster.
- New funding or tax incentives should be available to strengthen housing, including refundable tax credits or loans for low-income families.
- Funding for mitigation should be additional and should not displace existing funding sources.
- Mitigation efforts should be encouraged through insurance rates as well—while insurance rates should be actuarial, they should take into account resiliency measures which protect property.
- Coordination across federal agencies is needed so that standards are consistent. HUD, FEMA, DOE and others should work together so any activities regarding residential housing and buildings are done in a smart and safe way.