The National Flood Insurance Program(NFIP) has long been plagued with a host of problems that have diminished its effectiveness for managing the nation’s current flood risks and the future risks of flooding and sea level rise brought on by climate change.
In 2012, Congress took an important first step towards correcting these problems when it passed the Biggert-Waters Flood Insurance Reform Act (Biggert-Waters). Among the much needed reforms was the phase-out of flood insurance subsidies for several classes of properties that included vacation homes and properties that have repeatedly flooded and then rebuilt at taxpayers’ expense. FEMA was to phase out these subsidies, as well as grandfathered rates for properties that have been remapped into higher risk flood zones but still allowed to retain their old premiums, and begin charging insurance prices based on the actual risk of a property being flooded.
Tomorrow, the House is expected to take up legislation to reinstate both subsidized and grandfathered rates. The House bill goes a little further than a measure passed earlier by the U.S. Senate. The House bill not only reinstates discounted rates for grandfathered properties but it also extends subsidies to properties that have recently changed hands, keeping subsidies in place for future buyers.
Rolling back the earlier Biggert-Waters reforms and reinstating insurance subsidies is bad public policy. It sets back efforts to prepare for the impacts of climate change and is an over-correction for legitimate concerns about the affordability of flood insurance for people of limited means.
For some, federal flood insurance subsidies provide a legitimate and much-needed safety net. These cases should be addressed. But the House and Senate bills go much further, reinstating generous subsidies for properties that are known to be at greater risk of flooding and properties that have recently changed ownership, even if the owner has the ability to pay for insurance.
It’s important to remember that only 21% (1.2 million) of the properties in the NFIP are subsidized. Currently, 79% of policy holders (4.3 million people) covered by the NFIP already pay risk-based prices. The recent actions by Congress benefits the small minority of property owners and makes it easier and cheaper to buy properties in the riskiest, most flood prone areas.
Flood insurance pricing isn’t just an issue of restoring fiscal solvency to the NFIP, this is also about sending the right price signal that there is a cost associated with living in a risky area. Using the example in the drawing below, let’s say a buyer is looking at three properties, one that’s right on the beach, one a little ways back, and one that’s a little further inland. The price of flood insurance tells the buyer that they are going to be living with a higher risk.
Do you think the three properties above are at an equal risk of flooding? Of course not. But the moves by Congress will return us to the days of treating these three properties the same, with the owner of the property at greatest risk getting a taxpayer subsidized incentive to live in a risky, flood prone area.
That is a losing proposition, especially when you consider the increased risk of sea level rise and flooding due to climate change. A study last year commissioned by FEMA found that by the year 2100 coastal communities are expected to see, on average, a 55% increase in high-risk flood areas, mainly along the Eastern seaboard. High-risk flood areas along the nation’s rivers are also projected to increase by 45% by the year 2100, with increases as high as 100% in some riverine areas of the Northwest and along tributaries near the Great Lakes.
The latest actions by Congress represent a major step backwards for efforts to start preparing for the impacts of climate change that are too late to avoid.