An unprecedented wave of destructive hurricanes has brought the long-struggling federal flood insurance program to the brink.
Now Congress faces tough questions about whether to again bail out the nearly 50-year-old program and how to implement reforms to make it more sustainable, secure and cost-effective.
With five major hurricanes in recent weeks, insured damage has racked up estimated costs of $16 billion, adding to the $23 billion the program already owed to the Treasury Department for exceeding its borrowing limit.
The House authorized $16 billion in debt forgiveness Thursday as part of a disaster relief package, and the Senate is expected to follow suit. But the program will reach the end of its financial resources by the end of the month.
Even with debt relief and a short-term extension of the program, many say the flood program will not be self-sustainable without major reforms.
“I don’t think anyone would say the program is working well right now,” said Joel Scata, attorney with the Natural Resources Defense Council, an environmental advocacy group. “It needs to be reformed in a way that not only helps people recover from [a] flood but helps them get out of harm’s way.”
In 1968, Congress developed the program as a way to help homeowners in flood-prone areas that had been largely abandoned by the insurance industry due to the high risk. For private industry, a single hurricane as large as Irma, Harvey or Maria would be enough to wipe out a company.
Bob Hunter, who ran the flood program from 1974 to 1979, said it was originally designed only to protect existing structures that were left without coverage. The goal was to educate communities about safe building practices by identifying areas that were prone to flooding, he said.
“The stick was that communities would have to enact tough land-use and control housing,” said Hunter, who is now the director of insurance at the Consumer Federation of America.
Since then, the program has fallen off course, according to flood experts, insurance commissioners and lawmakers. The program fails to adequately update maps, making it harder to accurately determine flood risk in an area, and allows people to maintain artificially low premiums based on out-of-date risk predictions. The low premiums, experts suggest, could be encouraging people to rebuild in unsafe areas.
At the same time, lawmakers are struggling over how to keep premiums low enough to be affordable and maintain participation in the program while not putting too much of the cost on taxpayers.
“The program is totally failing, both in terms of getting safer building in the country and in terms of moving toward a self-sustaining insurance program,” Hunter said.
When Hurricane Katrina hit New Orleans in 2005, the program was not equipped to handle the quantity of claims and it was plunged into debt. In 2006 the Government Accountability Office put the NFIP on its “high-risk list,” meaning it predicted the program would not be able to repay the Treasury for money borrowed.
In 2012, Congress attempted to make the program more fiscally sustainable. The Biggert-Waters Act would have raised premiums to more accurately reflect flood risk and stop the “grandfathering” of subsidies, which allowed residents to keep policies with low premiums based on older risk estimates for their property.
Tropical Storm Sandy hit New Jersey a few months later and lawmakers abandoned those reforms as people complained of not being able to afford the new rates.
People “stormed Capitol Hill and said, ‘You can’t do that, I can’t afford that,’” said Burl Daniel, an insurance expert witness. If the program tried to remap areas and increase rates again, Daniel predicted “you’re going to have another march on Capitol Hill.”
Congress is now working to agree on new reforms before the program is up for reauthorization in December.
A rise in premiums could take the pressure off the federal government and taxpayers, advocates say, but opponents worry it will push people away from the program, leaving residents even more vulnerable to flood damage.
In a separate plea, some lawmakers are hoping to reduce the area that the flood program will insure to prevent the rebuilding of properties on unsafe, high-risk lands. The Natural Resources Defense Council, an environmental advocacy organization, found nearly 10% of damage from flooding comes from properties that have been damaged more than once, amounting to about $5.5 billion to repair so-called repetitive loss properties.
Office of Budget and Management Director Mick Mulvaney suggested in an Oct. 4 letter the flood program should not be able to sell insurance for properties on areas labeled as severe flood risk that are built after 2021.
Still others say the best solution is for the federal government to partner with the private insurance market to spread the risk between both parties. If private insurers have a stake in the losses, advocates say, they will want to raise premiums and consequently encourage communities to stop building on – and homeowners to stop buying – properties on high-risk land.
Critics worry that private insurers will “cherry pick” only the least at-risk properties to protect themselves, leaving the government to foot the bill for the most expensive risks.
But without a private market, taxpayers become the full insurer and “take the brunt of the hit,” said North Dakota Commissioner of Insurance Jon Godfread. “These [hurricanes] are massive hits going to” the flood program, he said. “I don’t think they can do it on their own at this point.”