Deadly floods create new urgency for insurance reform

Devastating floods in Missouri and Texas have given a new impetus to lawmakers fighting for legislation to reform federal flood insurance. 

The late-December flooding in the Midwest and Southwest claimed more than 40 lives and caused millions of dollars in property damage, adding further financial strain to an insurance program that was already $23 billion in debt.

{mosads}With the National Flood Insurance Program (NFIP) set to expire in September 2017, some members of Congress say the time has come to pass legislation that puts the program on the path to solvency.

“We need to get the private sector in the flood insurance business and the government out,” said Rep. Roger Williams, a Texas Republican whose Austin-area district has been hit twice this year with deadly floods.

Congress created the NFIP in 1968 to centralize flood insurance protection and give local communities an incentive to prepare for disasters. For years, the program filled a gap by covering flood-prone areas that private insurers wouldn’t.

But the program’s shortcomings became apparent after Hurricane Katrina in 2005 and Hurricane Sandy in 2012, which together put the program $23 billion in debt.

Critics say the NFIP relies on outdated flood maps and creates huge financial risk for the federal government by helping people live in
areas where flooding is likely.

Those critics say the private sector insurers are eager and able to provide affordable flood insurance coverage but can’t until Congress takes action. They see a possible solution in legislation from Florida Reps. Dennis Ross (R) and Patrick Murphy (D), the leaders of the House Financial Services subcommittee on housing and insurance.

Called the Flood Insurance Market Parity and Modernization Act, the bill would allow flood policies from previously disqualified insurers to count toward the NFIP’s requirement for high-risk areas to be continuously covered. These “non-admitted” insurers are not approved by state insurance departments but can be licensed to issue policies.

The Ross-Murphy bill would also let consumers switch between federal and private flood insurance without violating federal mandates.

The legislation has 19 Republican sponsors and the support of several home building and insurance advocacy groups.

Supporters of the legislation argue the private sector will be able provide flood insurance to more people at a lower cost, allowing the NFIP to downsize to an insurer of last resort.

Williams said the Ross-Murphy bill would drive premiums down and give consumers local, accessible and responsive service by shifting regulations from federal to state governments.

But so far, no Democrats have thrown their support behind the proposal from Murphy, who is running for an open Senate seat this year.

While Democrats agree that the NFIP needs a substantial overhaul, they say a reform bill needs stronger consumer protections for private insurance policies.

“We have got to make sure that premiums can be afforded by people who are not wealthy,” said Rep. Emanuel Cleaver, a Missouri Democrat who said he was astounded by the flooding across his state in typically safe areas. “It’s not going to be an easy piece of legislation to get through.”

The top Democrat on the subcommittee that handles flood issues, Cleaver hosted two hearings on flood insurance reform last week with panel chairman and fellow Missourian Rep. Blaine Luetkemeyer (R).

Insurers, homebuilders and good-government advocates urged Congress to move on the Ross-Murphy bill but acknowledged it will be a heavy legislative lift.

The difficulty of crafting an insurance reform bill is something Rep. Maxine Waters (D-Calif.) knows well.

In 2012, she teamed up with former Rep. Judy Biggert (R-Ill.) on legislation that cut many NFIP subsidies but failed to ease the program’s debt. She has since disavowed the bill.

“I was part of the problem,” Waters said in a Tuesday hearing. “Biggert-Waters was not right.”

Waters said in statement that she was “encouraged” by the Ross-Murphy bill but called for stronger federal and state oversight of insurers, specifically non-admitted insurers that can’t use funds reserved for insurers by states to cover disasters.

Democrats are also urging for specific action mandating the Federal Emergency Management Administration to update flood zone maps, which dictate the areas where homeowners must buy flood insurance.

While there’s bipartisan consensus that the maps are ineffective and outdated, Democrats insist they need to be redrawn in the reform legislation and not after the fact.

“If that doesn’t happen then we’re not going to be able to deal with this problem, because we wouldn’t have the actuarial cost,” Cleaver said. “We’ve got to deal with the remapping.”

Cleaver said he’s discussed moving on flood insurance reform with House Financial Services Committee leaders and predicted their support would lead to a wide bipartisan coalition behind an amended version of Ross-Murphy.

“It’s going to take a lot of give and take,” Cleaver said, but “I am absolutely convinced that we will have real bipartisan legislation brought to the floor.”