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NFIP reforms encouraged to demonstrate true flood risk

NFIP reforms encouraged to demonstrate true flood risk

Reform of the National Flood Insurance Program should include a shift toward risk-based premium rates so property owners know the true cost of the risk and an emphasis on mitigating the risk for repeatedly flooded properties, according to experts.

The program should also invest in mapping so properties are appropriately zoned in and out of the flood-prone zones and potential buyers do not opt against the coverage because they mistakenly believe their properties are not at risk, they said. 

“Rates in the program must over time be linked to risk, while understanding there may be some in the program who will need assistance in order to pay higher rates for reduced risk,” Steve Ellis, vice president, Washington, D.C.-based Taxpayers for Common Sense, testified at a Senate Banking Committee hearing last week. “Masking subsidies with lower rates prevents policyholders from understanding their true level of risk.”

A 2014 report by the U.S. Federal Emergency Management Agency noted that the presence of subsidies removed the incentive to undertake mitigation efforts and encourages increasing costs, said Mr. Ellis, whose organization is allied with the SmarterSafer coalition advocating reforms to the NFIP.

“Instead, premium assistance should be targeted to those who need it and encourage and fund mitigation measures that could serve to reduce rates by reducing risks,” he said. “These mitigation efforts should be targeted at higher risk and lower income property owners.”  

Means-tested subsidies such as vouchers for low-income homeowners may be part of the solution. 

“If we help subsidize mitigation, then the property is saved, the property owner can afford the insurance, the taxpayer helps pay off that loan in some ways, but then the process is over and we don’t have to keep going back and back,” said Larry Larson, director emeritus of the Association of State Floodplain Managers Inc. based in Madison, Wisconsin. “I think it can work. It may have to happen outside of the NFIP. Rather than process that money out of the flood insurance program, it may have to be appropriated.”

Accurate mapping is a critical component of this effort, said Michael Hecht, president and CEO of Greater New Orleans Inc. in New Orleans, Louisiana. For example, more than 80% of those affected by August 2016 floods in Baton Rouge, Louisiana, did not have flood insurance, which many outside the state would question, given Louisiana’s experience over the past 12 years, he said. 

“The answer is that many of those communities were not mapped into a flood zone or were only in optional purchase areas,” he said. “More accurate mapping would have prevented this.”

Participation in the NFIP has declined 11% to 5.1 million policies as of June 30, 2016, according to FEMA data. A potential solution would be to revert to opt-out policies, meaning home owners would be defaulted into the program unless they choose not to participate, he said. 

The association supports provisions of the NFIP reform proposal recently floated by Senators Bill Cassidy, R-La., and Kirsten Gillibrand, D-N.Y., that would increase the authorization for flood mapping to $500 million annually, and estimates that the entire United States can be mapped for about $4 billion due to better technology, Mr. Larson said. But he was not supportive of their pitch for a 10-year extension of the program.

“We do not believe that is appropriate,” he said. “I think Congress needs some more oversight during that period of time.”   



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