NFIP likely needs increase in borrowing authority to cover Harvey claims

Hurricane Harvey claim payments will outstrip the National Flood Insurance Program’s cash on hand and current borrowing authority, likely meaning the Federal Emergency Management Agency will need Congress to increase that authority.

The NFIP estimates it will make $11 billion in payments for flooding in Texas caused by Hurricane Harvey, according to the program's administrator, Roy Wright. FEMA has $1.7 billion available to pay Harvey claims, $5.8 billion in borrowing authority and about $1 billion in reinsurance.

“That turned out to be a very good investment,” R.J. Lehmann, senior fellow for the conservative R Street Institute think tank in Washington, said of the reinsurance purchase during a conference call on Thursday. “They paid about $150 million for $1 billion for reinsurance and it looks like they’re going to tap all of it.”

“They are certainly going to need to do that,” he added of the borrowing authority increase. “The question is how much are they going to need from Congress.”

The NFIP is currently in debt to the tune of $24.6 billion — a number that could double due to the impact of Harvey and Irma, he said.

‘One major storm away’ from a bailout

Meanwhile, a key U.S. House of Representatives legislator is making another push for his committee’s NFIP reform package legislation to be adopted by the full House. House Financial Services Committee Chairman Jeb Hensarling, R-Texas, responded to FEMA’s announcement that it would likely need Congress to increase the borrowing authority of the NFIP by making a pitch for the House to pass his committee’s reform package adopted in June.

“Congress must then finally get serious about fixing the NFIP because it is not only broke, it is broken,” he said in a statement on Thursday.

“Four years ago, after Hurricane Sandy, I warned my colleagues in Congress that the National Flood Insurance Program needed serious reform because it was not sustainable and was just one major storm away from needing another bailout,” he continued. “That sadly appears to be where we are today. Because Congress failed to enact reforms over the past four years, the program can’t meet the needs of flood victims without another bailout. The NFIP in its current form is unsustainable and perverse. It is a government monopoly that subsidizes people to live in harm’s way. With pricing structures that do not reflect the reality of risk, it actually encourages the building and re-building — and re-building again — of homes and businesses in flood-prone areas.”

President Donald Trump last Friday signed a $15 billion disaster relief package for Harvey that included an NFIP extension to Dec. 8. Congress should use this time to consider broad reforms for the NFIP, said Steve Ellis, vice president of the Washington-based Taxpayers for Common Sense, which is part of the SmarterSafer coalition advocating for NFIP reforms that map, mitigate and insure flood risks in a better manner.

“They need to be taking this time to actually enact reform legislation and move the ball forward,” he said. “These are incremental policies that they should be moving forward rather than kicking the can down the line.”

In addition, the coalition sent a letter on Thursday to Congress urging the reinstatement of a federal flood risk management standard, which was revoked by a Trump executive order in August before the two hurricanes hit the United States mainland.

“Trump’s order was reckless, and it really puts families and communities in harm’s way of greater disaster because we’re not preparing for the kinds of floods we’re seeing with such devastating impact,” Jeremy Symons, the Environmental Defense Fund’s associate vice president for climate political affairs in Washington, said in an interview with Business Insurance. “Congress clearly has a responsibility to get this right and undo what the president has done in trying to politicize the science of climate change and flooding. But I think the important thing is this isn’t a partisan issue. This is a clear issue of a smart way and a stupid way to do things, and Congress has a responsibility to put us on a smarter path that stewards taxpayer dollars wisely and provides the protections that communities will need when they rebuild.”