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Mixed signals muddle flood fix

By Jay MacDonald · Bankrate.com
Tuesday, January 21, 2014
Posted: 6 am ET

Coastal residents desperate for any legislative reprieve from skyrocketing flood insurance rates brought on by flood reform received mixed signals from Capitol Hill last week, after lawmakers approved temporary relief only to slam the door on prospects for a permanent solution.

9-month delay

On Thursday, the U.S. Senate and House of Representatives passed and sent a $1.1 trillion omnibus spending bill to the White House. Included in the bill is a provision that prohibits the Federal Emergency Management Agency (FEMA) from spending a dime on enforcing the higher flood insurance premium rates through the fiscal year that ends Sept. 30.

Predictably, there was little celebration on either side over a mere nine-month timeout.

But hopes of a more lasting flood reform fix were quickly dashed by House Speaker John Boehner (R-Ohio), who, when asked by reporters whether the House would consider pending proposals to temper the trauma wrought by flood reform, replied, "We're not going to do that."

Boehner specifically dismissed a move under way in the Senate that would delay for four years most aspects of the 2012 Biggert-Waters flood insurance overhaul law, including ending the low subsidized rates long enjoyed by homes built before the mid-1970s. He held out the possibility that the House might consider more modest tweaks to flood reform but declined to give details.

Flood insurance needs fixing

The elephant in the rotunda, of course, is Biggert-Waters, a long-overdue, bipartisan plan designed to remake the structurally-flawed National Flood Insurance Program, or NFIP, into a sustainable insurance program.

Congress created NFIP in 1968 to bolster and encourage flood-prone communities to adopt and enforce floodplain management plans as a way to curb rising flood losses. NFIP was intended to support itself on premiums alone, but lacking the tools that insurance companies use to stay afloat, including the ability to share its risk through reinsurance, NFIP quickly became a costly annual drag on taxpayers. NFIP is currently $25 billion in the red, thanks in large part to insured losses from hurricanes Katrina and Rita in 2005.

An end to subsidies

To help refill NFIP's coffers, Biggert-Waters does away with the subsidized rates of 1.1 million insured properties, or about 1 in 5 of NFIP's 5.5 million customers. Roughly 250,000 of those, including businesses, second homes and properties that frequently flood, are seeing immediate increases. The remainder will see their subsidies increase gradually over five years, unless they sell or suffer repeated flood losses, in which case the new "actuarially-sound" rate will kick in immediately.

Therein lies the problem. Many of these homes are far from the ritzy ZIP codes. Many of these owners can't afford even the stepped flood increases. And, if forced to move, their home now comes with a huge sales obstacle they never anticipated: a daunting flood insurance rate.

The question is, will Congress correct this unintended consequence of NFIP before it knocks the wind out of still-recovering housing markets?

Follow me on Twitter: @omnisaurus.

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