FEMA wants to charge low-income homeowners less for coverage, regain the ability to drop frequently flooded properties and have its $20B debt canceled.
Homeowners with low incomes would pay less for flood insurance under 17 changes proposed by the Federal Emergency Management Administration (FEMA) to shore up the National Flood Insurance Program’s (NFIP) shaky finances.
FEMA wants to spread the risk thinner by enticing more property owners to buy flood insurance; the agency hopes to make other changes in federal law that would result in a more effective program.
“It seems clear to me that the program is in desperate need of reform,” said U.S. Rep. Warren Davidson, the Ohio Republican who chairs the House Financial Services Subcommittee on Housing and Insurance, which held a hearing Friday. “This work is crucial and will ensure this program is moving in the right direction for taxpayers and policyholders alike, particularly given FEMA’s recent internal work to incorporate industry best practices and technology into its management of the NFIP.”
One of the 17 proposals asks Congress to cancel the $20.5 billion in debt that NFIP still owes the federal government – even after being forgiven $16 billion just a few years ago. The program needs to use about a third of its revenues to pay down the debt, which accrues interest at about $1 million a day.
The proposals also ask Congress to change the federal law that would allow the agency to start refusing coverage of properties that repeatedly flood. NFIP has paid to restore about 350,000 flooded properties at least twice – 10,000 of which have been flooded and restored 10 times or more.
The shifts are not final and many finer details – such as just how much a homeowner would need to earn to score lower rates under FEMA’s proposal, or how often a property would need to flood to become ineligible for insurance – remain unclear. Congress would need to file legislation in the coming months to make each of the changes possible ahead of a Sept. 30 program reauthorization deadline; a rule promulgation process would then spell out the particulars.
Established in 1968 to help homeowners get back on their feet after a flooding disaster, about 4.7 million homeowners and businesses now have policies under that program that cover properties worth more than $1.3 trillion.
The program was last approved in 2017. Both the U.S. House and Senate are holding hearings to discuss a myriad of recent issues that have undermined flood insurance’s continued viability.
Ten of history’s top 20 costliest flood events have occurred since 2013. Since Hurricane Katrina, NFIP has experienced eight weather disasters that cost more than $1 billion, compared to two such events prior to 2005.
Democratic Sen. Catherine Cortez Masto said during a Senate Banking committee hearing Tuesday that her desert state of Nevada has seen record amounts of rain and snowpack melt, causing officials to press flood insurance policies on a population that has never before thought about flooding as a problem.
Just one inch of water in a home can cause about $25,000 in damage. In 2019, the average flood claim payout was over $32,000.
About half the covered properties are in flood-prone areas whose owners can least afford the price increases that are part of the new methodology designed to better link insurance rates with payouts, called Risk Rating 2.0. FEMA estimated in a 2022 internal memo that about 900,000 policyholders would drop their coverage, largely because of increased policy prices.
“My people don’t have million-dollar mansions on the Gulf,” U.S. Sen. John N. Kennedy, R-Madisonville, said Tuesday. “These are working people and their mortgage company requires them to carry flood insurance. …These people can’t afford flood insurance but they’ll have to give up their home if they don’t carry it.”
Under Risk Rating 2.0, property owners buying new policies in St. Mary Parish, which has a median household income of $40,218 annually, would have to pay $5,226 for flood insurance, Kennedy told disaster recovery expert Roy Wright, who as the head of NFIP in 2017 launched the development of Risk Rating 2.0 in answer to criticisms that flood insurance policies weren’t priced fairly and didn’t cover damage expenses.
“The people who implemented this and rolled it out in this manner ought to hide their head in a bag,” Kennedy said.
Wright responded, “These insurance calculations are more like calculus than they are arithmetic. But the risks are growing. The cost of wind insurance in southern Louisiana is just as high or higher (than flood insurance, which has to be purchased separately).”
David Maurstad, who is the current NFIP senior executive, said the agency’s 17 recommendations to revamp the flood insurance program would ensure more property owners could be covered and that would help lower the overall costs.
Under current law, FEMA does not have the authority to charge premiums based on a policy holders’ ability to pay. If Congress agrees to change the law, the program could align prices with the buyer’s income.
Sen. Elizabeth Warren, D-Massachusetts, pointed out that some data, though not official FEMA numbers, indicate that most claims come from residents living in areas that flood more often. These flood prone areas are home to a higher percentage of people in poverty, people of color, and people over the age of 65.
This is largely because of past government policies, such as “red lining” that supported segregated, low-income communities, Warren said. Those places lacked infrastructure and had unsound buildings. Red lining was standard banking practice until the 1970s that refused housing loans to certain people outside specific neighborhoods.
Maurstad had said that FEMA doesn’t track people who receive aid by race to avoid the possibility of inadvertent racism. Warren said FEMA needs to start collecting that data.
“We need to work to address that injustice and to ensure that federal programs are actually fixing the disparity, not making it worse by forcing people to pay more than their fair share or by limiting relief to the people who need it most,” Warren said.