National Flood Insurance Program

CBO: Delaying Flood Rate Increases Would Add $2.1 Billion to NFIP Debt

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January 10  |  Flood, National Flood Insurance Program, News  |   Danielle Szeliga

Legislation designed to delay rate increases for some National Flood Insurance Program policyholders would add $2.1 billion to the program’s debt over the next 10 years, according to a cost estimate released by the Congressional Budget Office.

The Homeowner Flood Insurance Affordability Act, which may be voted on by the full Senate this week, would push back rate increases for primary homeowners until six months after the Federal Emergency Management Agency completes an affordability study. The affordability study was required to be conducted by the Biggert-Waters Flood Insurance Act of 2012 and was supposed to be finished by April 2013. FEMA Administrator Craig Fugate has said the study has been delayed by a lack of resources.

SB 1846, which was authored by Sen. Robert Menendez, D-N.J., would allow FEMA to use additional resources to complete the affordability study (Best’s News Service, Jan. 8, 2014).

But the CBO said delaying the rate increases would reduce net income to the NFIP by about $2.1 billion by 2024.

“Under current law, CBO expects that, on average expenditures, of the program will exceed collections over the next 10 years,” the CBO said. “Reducing net income would increase those shortfalls, resulting in additional borrowing by the program.”

Menendez’s bill came after many NFIP policyholders said their rates were set to increase dramatically, starting this month. Menendez said in a Jan. 7 statement that all other aspects of the Biggert-Waters Act would continue to proceed. He said that means the most costly subsidies for NFIP policyholders will continue to be phased out.

It is unclear whether the CBO report will alter the chances of the Senate voting to pass the Menendez bill.

The Senate is currently locked in contentious negotiations over whether to extend unemployment insurance benefits for an additional three months, at a cost of $6 billion. Many Senate Republicans have said the cost of any extension of unemployment insurance should be offset by spending cuts.

The debate over unemployment insurance has delayed a vote on the Menendez bill, according to two of the senator’s spokesmen.

Meanwhile, Congress is working to complete a budget bill before federal funding runs out on Jan. 15.

In addition to the Menendez bill, several other pieces of legislation have been introduced in both chambers of Congress that are designed to soften the financial impact of the Biggert-Waters Act.

Those bills have so far failed to gain traction among lawmakers. The Menendez bill appears to be the most likely to pass the Senate, given that it has picked up the support of a bipartisan group of senators from coastal states.

Mississippi Insurance Commissioner Mike Chaney has turned to the federal courts in an effort to delay some NFIP rate increases.

But this week, a U.S. Chief District Judge Louis Guirola Jr. of the federal court in Gulfport, Miss. delayed consideration of FEMA’s attempt to dismiss the lawsuit, which seeks to halt implementation of the NFIP rate hikes (Best’s News Service, Jan 8, 2014).

Chaney’s lawsuit is the leading edge of several coastal states’ push to delay the NFIP rate increases. Several coastal states, including Louisiana, Florida, Alabama and Massachusetts are among those that have filed briefs in support of Mississippi’s effort.

By Jeff Jeffrey, Washington Bureau manager

Source: AM Best

US Senate Set to Vote on Bill to Delay NFIP Rate Hikes

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January 9  |  Flood, National Flood Insurance Program, News  |   Danielle Szeliga

The U.S. Senate could hold a vote as early as Jan. 8 on a bipartisan bill that would delay rate increases for some National Flood Insurance Program policyholders.

The Homeowner Flood Insurance Affordability Act, which was introduced by Sen. Robert Menendez, D-N.J., would push back rate increases for primary homeowners until the Federal Emergency Management Agency completes an affordability study the Biggert-Waters Flood Insurance Act of 2012 required it to finish by April 2013. The bill would allow FEMA to use additional resources to complete the affordability study.

Menendez said in a Jan. 7 statement that all other aspects of the Biggert-Waters Act would continue to proceed. He said that means the most costly subsidies for NFIP policyholders will continue to be phased out.

“We’ve tried to reach a delicate balance with this bill that recognizes the need to improve solvency and phase out certain subsidies, but tries to do so without discouraging program participation and thus undermining solvency and fiscal responsibility,” Menendez said.

Steven Sandberg, a spokesman for Menendez, said the senator is pushing for a full floor vote Jan. 8. However, “things remain fluid,” he said.

Congress is currently considering legislation that would extend unemployment insurance for three months, a contentious proposal that threatens to delay progress on the Menendez bill.

Menendez’s bill came after many NFIP policyholders said their rates were set to increase dramatically, starting this month. A number of bills have been introduced in both chambers of Congress that are designed to soften the financial impact of the Biggert-Waters Act.

However, many of those bills have failed to gain traction among lawmakers.

In the Senate last month, SB 1610 died on the floor after the bill’s supporters failed to get a voice vote that would have adopted the bill by unanimous consent. The bill would have delayed rate increases included in the Biggert-Waters Flood Insurance Reform Act indefinitely.

A similar Republican-backed bill in the House failed to gain enough traction among Democrats to reach the two-thirds vote required to expedite the bill.

Other proposed delays to the NFIP rate increases have also failed to make progress in the House (Best’s News Service, Dec. 18, 2013).

Mississippi Insurance Commissioner Mike Chaney has turned to the federal courts in an effort to delay some NFIP rate increases.

But this week, a U.S. Chief District Judge Louis Guirola Jr. of the federal court in Gulfport, Miss. delayed consideration of FEMA’s attempt to dismiss the lawsuit, which seeks to halt implementation of the NFIP rate hikes.

Chaney’s lawsuit is the leading edge of several coastal states’ push to delay the NFIP rate increases. Several coastal states, including Louisiana, Florida, Alabama and Massachusetts are among those that have filed briefs in support of Mississippi’s legal effort.

By Jeff Jeffrey, Washington Bureau

Source: AM Best

Senate Unveils Legislation to Delay Some NFIP Rate Increases

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October 29  |  National Flood Insurance Program, News  |   Danielle Szeliga

Senate legislation to delay some flood insurance rate increases for four years was unveiled late last week.

With the support of 18 senators, the bill looks to stop–except for second homes and businesses–scheduled National Flood Insurance Program rate hikes mandated by 2012’s Biggerts-Waters Act reauthorizing the program.

Rep. Maxine Waters, D-Calif., a named sponsor of the 2012 law, announced that she would introduce companion legislation in the House. Her likely co-sponsor is Rep. Michael Grimm, R-N.Y.

Specifically, the proposed legislation would apply to primary homes, non-repetitive loss residences that are currently grandfathered, all properties sold after July 6, 2012, and all properties that purchased a new policy after July 6, 2012.

FEMA officials as well as government and real estate officials in Florida currently estimate that the despite the uproar over the rate hikes imposed by the law, only 20 percent of flood policies nationwide will see rates go up. That’s because it mostly affects homes built before communities entered the flood program and drew up floodplain maps in the early 1970s. They have received artificially low rates for decades, officials have said. However, congressional officials from Hawaii to Vermont are feeling the heat from the rate hikes.

Prompt enactment of the legislation is no slam dunk. Some bills reflecting the new rates started to go out at the beginning of the month.

And, unless sponsors of the bills seeking the delay can come up with funds offsetting the federal budget implications of the legislation, they would have to have a strong majority in order to get a waiver of those budgetary rules. The amount of the required funds will have to be set by the Congressional Budget Office.

Moreover, as a result of Sandy and Katrina, the NFIP owes the Treasury about $24 billion.

At the same time, key members of the House Financial Services Committee, as well as other fiscal hawks in both the House and Senate, could hold up passage.

And the insurance industry is likely to object.

For example, Jimi Grande, senior vice president, federal and political affairs for the National Association of Mutual Insurance Companies, said delaying the reforms of the law, “means returning the NFIP to the days of needing taxpayer bailouts to meet its obligations.”

Grande noted 406 members of the House of Representatives voted in support of Biggert-Waters “and for the fair and responsible steps it takes towards having individuals pay flood rates that match the actual risk faced by those properties.”

He said voting to roll back these reforms “is bad policy that will serve to further shift the cost burden onto taxpayers as well as mask the true cost and risk faced by these properties.

“In those cases where homeowners truly face a hardship from the new rates, it makes far more sense to provide a means tested transparent subsidy to make coverage more affordable while still strengthening the program financially,” Grande said.

Meanwhile, a lawsuit seeking an injunction against the rate hikes has been filed in Federal District Court in Mississippi by the state’s insurance commissioner. Louisiana is filing as a friend of the court in the case. Florida, and likely Alabama, are drafting similar briefs.

A hearing on the issues involved in the lawsuit is likely before Thanksgiving, Mississippi Insurance Commissioner Mike Chaney said.

The newly drafted Senate legislation would delay most of the rate hikes until FEMA completes the affordability study mandated by the law, proposes alternatives to the rate hikes, and gives Congress adequate time to review their findings.

The Senate bill would also give FEMA more time to complete the study, provide reimbursement to qualifying homeowners for successful map appeals, give communities fair credit for locally-funded flood protection systems, and create an ombudsman within FEMA to answer policyholder questions.

Sen. Mary Landrieu, D-La., is spearheading the effort to forestall most of the rate increases. She announced the coalition’s plans in a statement saying those adversely affected by the rate hikes include senior citizens on fixed incomes who have lived in the same homes for decades, homeowners who purchased or built their homes before Flood Insurance Rate Maps (FIRMs) existed, and others “who played by the rules, elevated their homes when maps were released decades ago, only to find that they need to elevate yet again when FEMA redraws their maps.

“For some Americans, these premium rate hikes will force them out of their homes and could even erode entire neighborhoods or communities,” she said.

Living in harm’s way

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October 28  |  National Flood Insurance Program, News  |   Danielle Szeliga

Major changes in the reform of the national flood insurance program passed by Congress in 2012 are just now taking effect, provoking a fierce backlash from affected policyholders and real estate interests. Most homeowners with flood insurance have little to worry about, though. At least not yet.

The law made a host of changes in the program designed to accurately reflect the level of risk. The most important change mandates an end to subsidized rates for selected properties in flood zones.

That may be the most important point to keep in mind as the debate over new flood insurance rates heats up: Severe increases will be the exception rather than the rule.

According to the Federal Emergency Management Agency, more than 80 percent of policyholders across the country do not pay subsidized rates. That means 4.48 million of the 5.6 million policies in force across the nation are in the clear. They already pay full-risk premiums and will not see large premium increases.

Even among the remaining 20 percent of policyholders, only one in four will see immediate increases to their premiums. Those involve subsidized policies covering non-primary residences, businesses, and severe repetitive loss properties.

For Florida, these changes are a big deal. The state has more than 2 million of the nation’s flood insurance policies and is by far the biggest contributor to the federal program. Some 269,000 property owners in the state, about 13 percent of those with flood insurance, are affected by the early changes, and some of the hikes are indeed steep.

According to the Florida Keys Keynoter, policies for some ground-level homes in the Keys’ flood insurance program that cost $2,000 to $3,000 a year suddenly cost $30,000 a year or more.

That’s outrageous. Congress should find a way to ameliorate these steep increases. But any changes should be narrowly targeted to help those who need it, including primary homeowners. People should not be priced out of their homes because of sudden insurance increases, particularly middle-class property owners who have lived in their homes for decades.

In addition, the law calls for “affordability” in flood insurance rates, but doesn’t spell out what that means. It would make sense to delay severe hikes until FEMA can define affordability and ensure that its rates meet that standard.

But calls for Congress to make wholesale changes in the law or delay implementation are misplaced. The program is $24 billion in the red and getting worse every year. Anyone owning property in areas prone to flooding should be prepared to pay premiums that reflect that risk — especially in Florida, a state with an extensive coastline development and many homes built at or below what FEMA calls “base flood elevation.”

In the coming years and decades, climate change is expected to bring rising ocean levels that will further endanger coastal properties. Political leaders in Tallahassee and elsewhere in the state may turn a blind eye to the costs of over-development along our coasts, but the federal insurance program — ultimately backed by taxpayers — cannot afford to maintain subsidized flood insurance rates for anyone who wants to live on the water in a home at low elevation. Choosing to live in harm’s way comes with a price tag.

Higher flood insurance rates are an inevitable result of ignoring the dangers posed by climate change. Continuing to ignore the risk will only make the price higher in coming years.

Price hike expected for flood insurance

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May 4  |  Federal Emergency Management Agency, Florida, National Flood Insurance Program, News  |   Danielle Szeliga

WASHINGTON – The National Flood Insurance Program, the only source of coverage for 2.1 million Florida households, will raise its rates by an average of 5 percent in October and maybe as much as 20 percent in high-risk areas over the next few years.

Federal officials also have told Florida insurance agents they can no longer provide discounts of up to 15 percent for their customers.

The looming increases are another jolt to home ownership in the state, especially in coastal areas or along inland waterways near sea level, where lenders cannot finance a mortgage without flood insurance. Some of the riskiest areas may even be excluded from coverage, making further development untenable in those parts of the state.

Higher rates are inevitable as Congress lumbers toward revamping the insurance program, which is mired in more than $18 billion of debt.

“People who receive the most subsidies in risky areas will see big premium increases, probably phased in,” predicted Eli Lehrer, national director of the Center on Finance, Insurance and Real Estate at The Heartland Institute in Washington. “Rates have to go up. The real question is: Will the program be sustainable? It cannot continue at the rates it has now.”

The impact is especially significant in Florida, home to 2.1 million of the nation’s 5.6 million flood-insurance policies. The most vulnerable areas to flooding are on the southern tip of the peninsula below Lake Okeechobee and along the Atlantic coast east of Orlando.

A bill already passed by the House would set premiums more in line with actual risks, which would raise rates in some places and lower them in others. The Senate is considering its own version. Both bills would modernize maps used to designate flood zones and determine rates.

Congress must agree on reforms — or pass another extension of the current program – by May 31 to prevent it from expiring. The program has lapsed several times in recent years while Congress remained deadlocked, wreaking havoc with Florida real-estate deals because many cannot be closed until flood insurance is secured.

“There could be a short-term blip if closings are delayed,” said Mike Larson, a real estate analyst at Weiss Research in Jupiter. “It can change what you owe for closing costs. There are some hitches that could come up if you cannot write flood insurance policies.”

The Federal Emergency Management Agency, meanwhile, has informed Florida insurance companies that as of Oct. 1 they will no longer be able to provide “rebates,” or discounts that have sliced premiums for some customers by as much as 15 percent.

A Vero Beach company, Statewide Condominium Insurance, has launched a petition drive, rounding up signatures from Florida residents to pressure FEMA to save the rebates. The goal is 100,000 signatures by Aug. 1.

The company says it has rebated more than $2 million a year to its clients, and some other companies are making similar offers.

Homeowners can purchase flood insurance directly from FEMA. But most buy coverage through insurance agents, who typically deal through an intermediary known as “Write Your Own” companies, which acquire policies from FEMA.

The government gets the full premium and shoulders the risk. But some agents in Florida, making use of state law, rebate some of their sales commissions to attract customers.

A FEMA spokesman said the agency decided to quash rebates because the program is “better served by a system of uniform national pricing that will ensure policyholders pay the same price for the same risk.”

He noted that 48 other states consider rebates “an illegal inducement to purchase insurance,” and that rebates have sparked complaints from competing agents and companies.

FEMA decided that rebates emphasize price over protection and lead to “policy churning,” prompting consumers to buy new or replacement policies year after year that drive up operating costs for the program. And rebates can lead to discrimination among policyholders, FEMA concluded.

But ending rebates means that many Floridians will pay more, said Jerry Wahl, president of Statewide Condominium Insurance. “Times are tough,” he said, “and we believe all businesses should be permitted to conduct operations in accordance with Florida statutes.”

Florida holds 37 percent of policies nationwide.

Of all the cities and counties in the state, unincorporated Miami-Dade Countyhas the most policies by far, with 194,982. Unincorporated Palm Beach County has 72,568, Miami has 48,945, Miami Beach 47,523, Fort Lauderdale 43,299 and unincorporated Broward County 34,809.

Inland Florida generally has less coverage, but some parts are still prone to flooding. Orlando has 3,962 policies, and unincorporated Orange County has 11,744. The risk of flooding gets worse along the Atlantic coast, where unincorporated Brevard County has 27,143 policies.

Irene May Cause NFIP to Overflow Its Bank

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August 30  |  National Flood Insurance Program, News  |   Danielle Szeliga

Hurricane Irene not only left a trail of damage up and down the East Coast, it struck a blow to the fiscal strength of the National Flood Insurance Program.

The U.S. Federal Emergency Management Agency is not yet prepared to estimate the number of claims or their aggregate value. However, the program is certain to crest above its fiscal banks, insurance industry experts say.

Combined with the impact of widespread flooding in the Midwest and elsewhere, Irene will lead the program to pay out more in claims than it will gain in premiums this year, said Robert Gordon, senior vice president of policy development and research for the Property Casualty Insurers Association of America. Private flood insurance plans, which are more of a specialty product, suffered more than $27 billion in losses so far this year, Gordon said; that figure could top $30 billion after Irene.

“It means this program is going to go deeper into debt,” said Joshua Saks, water program specialist for the National Wildlife Federation, which has advocated for market-based reforms to the NFIP.

The NFIP is more than $18 billion in debt to the U.S. Treasury, a load that mostly dates to the impact of Hurricane Katrina in 2005. A reauthorization and reform bill passed by the House of Representatives does not address the debt; a discussion draft circulating in the Senate would wipe the debt clean (Best’s News Service, July 19, 2011).

The flood program has approximately 930,000 policies in force from North Carolina through Maine, according to statistics from FEMA, which oversees the NFIP.

The NFIP would not have deficit worries if it charged market rates and covered all who needed it, said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies. “Any one of those states should have triple that, just from people who live on the coast,” he said.

Due to its sheer size and unusual strength, Irene struck many property owners who never previously worried about flooding — and consequently did not have insurance. “We had thousands of people who had no idea they were in a flood zone,” Saks said.

In the aftermath, Irene has bolstered the case for reforms to FEMA, Grande said. The current program is set to expire Sept. 30. While a short-term extension is possible, many are wary of going that route given lapses in the program in the summer of 2010.

“It makes it harder for them to punt yet again,” Grande said.

Still, obstacles remain. Disagreements run strong over what to do about the debt, the future of subsidies, new flood maps and the write your own program, Gordon said. “Irene will highlight a need for renewal, but it won’t eliminate the obstacles to reform,” he said.

Early estimates put the damage at roughly $2.6 billion in insured losses and as much as $7 billion in total economic losses, according to Kinetic Analysis Corp. Those losses come after a series of natural disasters this year that include dozens of tornadoes and an earthquake in Northern Virginia (Best’s News Service, Aug. 29, 2011).

The damage caused by Irene adds to the $20 billion in insured losses that have already occurred this year, said Tom Larsen, senior vice president of Eqecat, a cat modeling company. Larsen said even though Irene had been expected to hit highly populated urban centers such as New York City and New Jersey with much higher wind speeds than actually occurred, the breadth of the storm makes it difficult to put a cost figure on parts of the damage (Best’s News Service, Aug. 29, 2011).

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