It didn’t get nearly as much attention as other high-profile issues, but the deal to reopen the federal government after a three-day shutdown also meant turning the lights back on for the National Flood Insurance Program. Statutory authorization for the NFIP actually was set to expire Sept. 30 and, thanks to inaction by the Senate, it has been kept going only by its addition to the subsequent continuing resolutions.
Lapses in the program — the primary insurer of flood risk for more than five million policyholders nationwide — can be incredibly disruptive, as the NFIP can’t write new policies without statutory authorization. Earlier congressional inaction caused the program to lapse four times between 2008 and 2012, including for the entire month of June 2010. According to the National Association of Realtors, such lapses cause 40,000 lost or interrupted home sales every month.
{mosads}Housing markets would be far less prone to this sort of disruption if more private flood insurance options were available. And that’s precisely one of the goals of the 21st Century Flood Reform Act, which the U.S. House passed in November by a 237-189 margin. In addition to reauthorizing the program for five years, the bill would clarify that homebuyer in flood zones can use private flood insurance to satisfy federal lending requirements.
That small change alone could help to boost what has been a rapidly growing market in private flood insurance. It also would, in many cases, give property owners more affordable options. Even though many properties, particularly in coastal regions, do not currently pay rates commensurate with the risk they face, research by the actuarial firm Milliman projects that 69 percent of NFIP policyholders in Louisiana, 77 percent in Florida and 92 percent in Texas policyholders could find a better deal in the private market.
Alas, the legislation has remained stalled in the Senate, where the Committee on Banking, Housing and Urban Affairs has yet to take up flood reform. As the strikes of Hurricanes Harvey, Irma and Maria last year made clear, there is an urgent need for action. The Congressional Budget Office projects the program will continue to run an average annual structural deficit of $1.4 billion, evident in the fact that it has had to borrow in excess of $40 billion from U.S. taxpayers in recent years. Congress was presented with the perfect opportunity to address these fundamental issues when it passed a $36.5 billion disaster aid package in October. Instead, lawmakers included a provision in that bill forgiving $16 billion of the NFIP’s debt, without demanding any reforms at all.
In addition to encouraging more private options, the House bill would address the single biggest driver of claims — repetitive loss properties. Though they only make up two percent of the NFIP policyholder base, properties that have flooded three or more times account for more than 20 percent of the program’s losses. Under the House bill, properties that flood two or more times would see their rates rise by 10 percent annually, and those that have flooded three or more times would see annual increases of 15 percent until they reach risk-based levels. When a repetitive loss property’s future cumulative claims exceed 150 percent of the maximum coverage amount, the policyholder would have to agree to implement to implement mitigation steps or risk losing coverage.
The House bill isn’t perfect. The Senate could improve it by adding language to strengthen mitigation and improve the program’s maps. But there is no good policy justification for the chamber’s continued inaction. As currently structured, the National Flood Insurance Program is unsustainable, drowning in debt and distorting housing and development patterns in ways that encourage risky behavior and undermine environmental priorities. It’s time for Congress to act in a bipartisan fashion to steer it toward a more reasonable course.
R.J. Lehmann (@RayLehmann) is director of finance, insurance and trade policy at the R Street Institute, a nonprofit group dedicated to promoting limited government in Washington, D.C.