Monday, May 16, 2011

Revisiting the National Flood Insurance Program in the Wake of More Flooding

With flooding along the Mississippi River a national headline this week, the House of Representatives is revisiting the National Flood Insurance Program.  As you may recall, last year funding for the NFIP lapsed several times, making it impossible to sell or refinance houses located in a flood zone.  Maxine Waters had a bill in the House of Representatives last year to extend the National Flood Insurance Program for five years, but even though her bill passed the House, it did not pass the Senate.  The Senate merely extended the current program until September 30, 2011.

On Friday, May 13, 2011, HR 1309, the National Flood Insurance Reform Act of 2011, unanimously passed the House Financial Services Committee and will now head to the floor for a vote.  Introduced by Judy Biggert, (R-IL), this bill will extend the National Flood Insurance program for five years, until 2016.  But, unlike some of the past bills that have attempted to extend the flood insurance program, HR 1309 addresses some of the biggest problems of the NFIP.

Undoubtedly, the biggest single problem with the NFIP is that it is currently $18 billion in debt to the U.S. Treasury with no hope of being able to pay back the money it has borrowed. Unlike other insurance programs that are required to retain a reserve against emergencies, the NFIP uses the U.S. Treasury as its reserve.  The program lost billions paying for the damage caused by Hurricane Katrina and the other hurricanes of 2005, and it has not been able to recoup those losses. Now, with flooding along the Mississippi River, the program will be paying out billions more in flood insurance. 

Part of the problem with the NFIP is that the program is mainly utilized by people living in areas that flood.  For example,the Florida Disaster website, which is managed by the Florida Division of Emergency Management, states that the state of Florida has 18.5 million residents and 80% of them live or do business on or near the coastline. Ninety-seven percent of Florida communities participate in the National Flood Insurance Program, and as of December 31, 2010, there are over 2 million flood insurance policies in Florida, representing 37% of nationwide policies and totalling 1.2 billion dollars in insurance coverage. (Source

Traditional insurance spreads risk by getting a large number of people into a pool, including those who, hopefully will never have need of the particular coverage being offered.  And that is certainly what FEMA has been attempting to do with its ad campaign to get all homeowners to purchase flood insurance voluntarily. The "Hillsboro Reporter" quotes the Region 6 FEMA administrator Tony Russell, "While many people are required  by mortgage and lending companies to have flood insurance, FEMA and the National Flood Insurance Program (NFIP) strongly recommend that everyone have flood insurance...The reason is simple, 'You don't have to be in mapped flood plain to flood.'"  Other representatives of FEMA have been quoted as saying, "We all live in a flood plain."

FEMA has also redrawn the flood maps to put more residents into flood plains, including those who have only a very slight chance of flooding.  By requiring that those people with less risk of actually flooding paying into the system, they can shore up revenues.

Unfortunately for FEMA, and fortunately for the rest of us, we don't all live in a flood plain.  My office building sits high on the street.  When rains came that flooded most of El Paso in 2006, I got a small amount of water under the garage door, and that was it.  And for many people in Texas and in New Mexico, there is no real chance of ever flooding, so we would be paying for flood insurance that we would never use.  Just to get an idea of what flood insurance would cost, I put my office address into the website and pulled up a quote.  The area is listed as "moderate to low risk,".  For a policy with a $1000 building deductible, and coverage that would cover the note completely, the premium would be $1447.00 per year.   The Flood Smart quote states clearly that the insurance will not pay replacement cost, and that the claims will be settled using the depreciated actual cash value of the building.  Also, business interruption insurance is not available through the program.  That sounds like very little coverage for $1447 a year.

Southern New Mexico Congressman Steve Pearce, (R-NM) who actually represents the district where I live, has added an amendment to HR 1309 to remove federal mandates for those who actually should not be in flood zones. "During this difficult economic time, New Mexicans cannot afford to pay for federally mandated flood insurance that they don't need."  On his website, Pearce tells the story of a constituent in Tularosa "whose home is seventy feet above the river.  Her home is listed in the flood plain, but the river itself is not."   (Tularosa is in the southern New Mexico desert, where flooding is extremely unlikely.)

To address some of these issues, HR 1309 creates a "Technical Mapping Advisory Council" consisting of the administrator of FEMA or his designee, the Director of the U.S. Geological Survey Department of the Interior, the Under Secretary of Commerce for Oceans and Atmosphere, the Commanding Officer of the U.S. Army Corps of Engineers, the chief of the Natural Resources of Conservation Service of the Department of Agriculture, the Director of the U.S. Fish and Wildlife Service of the Department of the Interior, and the Assistant Administrator for Fisheries of the National Oceanic and Atmospheric Administration of the Department of Commerce, or the designees of each of these individuals.  Additionally, the Administrator of FEMA shall appoint 9 members who will be experts representing each of the following areas of specialization, 1. data management, 2. real estate, 3. insurance, 4. regional flood and storm water management organization; 5. a State emergency management agency or association; 6. a professional surveying association; 7. a mapping association;  8. an engineering association; 9. an association representing flood hazard determination firms. The members are to be appointed based on knowledge and competence in the areas of surveying, cartography, remote sensing, and technical aspects of flood insurance rate map preparation.

This Council will be charged with the responsibility of proposing new mapping standards to "ensure that flood insurance rate maps reflect true risk, including graduated risk that better reflects risk to each property; such reflection of risk should be at the smallest geographic level ensure that communities are mapped in a manner that takes into consideration different risk levels in the community."  By having a professional council set new standards for the maps, Congress is hoping to correct some of the problems that have been created by placing a lot more homes in flood zones over the past few years.

Finally, HR 1309 mandates that FEMA and the Government Accountability Office assess options for the privatization of the flood insurance program.  Privatization could take the stress off of taxpayers, who currently owe $160.00 per U.S. household to cover the $18 billion dollars owed by the NFIP to the U.S. Treasury--about six times more than the NFIP currently collects in premiums.  Craig Fulgate, director of FEMA, testified before Congress in April that "FEMA is unlikely to pay off its full debt, especially if it faces catastrophic loss years."

HR 1309 has bipartisan support so sponsors are hoping to get it to the president's desk before September 30 when the current funding for NFIP expires.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen.  For more information, visit her website at

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