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GNO challenges FEMA on flood insurance rate increase
September 11, 2013
WASHINGTON – A New Orleans-based economic development group argued Wednesday in a report that more must be known about how increases in flood insurance policy rates will impact property owners before the premium hikes go into effect later this year.
The analysis by Greater New Orleans Inc. criticizes the Federal Emergency Management Agency for moving forward with raising the insurance rates, which will increase costs for millions of property owners nationwide, without first assessing affordability.
Nearly 500,000 property owners in Louisiana have flood insurance policies with the National Flood Insurance Program, called NFIP.
Although flood maps for many areas are still being finalized — much remains unknown — some changes are beginning to be implemented Oct. 1. Worst-case scenarios show insurance hikes of 2,500 percent, for example, from about $600 a year to $15,000 for some grandfathered properties losing their subsidies, said GNO Inc. President and CEO Michael Hecht. GNO has helped lead the fight against changes to the flood insurance program that would increase premiums.
The NFIP was changed last year by Congress to make the program more financially self-sustainable. But much of that involves phasing out the special status that limited premiums on many properties built decades ago, as well as increasing rates on newer properties.
Although the NFIP’s premium revenues virtually match expenses for claims paid, FEMA says about 30 percent of its revenues go to private insurance companies for commissions and servicing costs, thus adding to its annual deficit. The GNO report questions the fiscal soundness of giving 30 percent of its revenues to companies carrying “zero risk.”
The report also contends that the NFIP must become more financially self-sustainable, but that it has to be done fairly. “But there are hundreds of thousands of Americans who have done nothing wrong, have built exactly as the federal government has told them — and who now could have their lives destroyed,” the report states.
“If unchecked, the negative consequences are broad: owners will lose everything, values of unsellable properties will plummet, bank mortgages will go into default, local tax bases will erode, and economies will be eviscerated,” the report continues. “We are already seeing this negative spiral in St. Charles Parish, where values on some homes have been lowered 30 (percent) by the assessor — an unprecedented action. Ultimately, this ‘cascade effect’ will undermine NFIP itself, as policyholders will leave an unaffordable program.”
GNO Inc. argues that more information is needed on the number of homeowners and businesses impacted. The report also questions why FEMA does not more strongly enforce the 40 percent of federally backed mortgages required to have flood insurance but do not.
Coinciding with the report, a group of Jefferson Parish elected officials and business owners flew into Washington, D.C., on Wednesday for a “fly-in” effort organized by the Jefferson Chamber of Commerce to vocalize concerns about the proposed changes in the flood insurance program.
“Generations of Louisiana home and business owners have made lifelong plans and investments based on the existence of affordable flood insurance,” said Jefferson Chamber President Todd Murphy. “Increased insurance rates and changes to the flood insurance maps would be devastating to residents and the business community of Jefferson and our neighboring parishes.”
The NFIP has been in financial distress with a loss of nearly $25 billion, largely due to payments made after hurricanes Katrina and Rita in 2005.
FEMA asserts the NFIP reauthorization made into law last year will implement rate hikes of up to 25 percent a year on non-primary residences, businesses and homes that have flooded multiple times.
Primary residences currently receiving subsidized “grandfathered” rates are not affected until the home is sold or the policy lapses. Parish presidents in southern Louisiana argue that provision would make those unsellable.
Grandfathered properties were built before the NFIP started in 1968 and also applies to properties that have seen their flood risks increase over the years.
The congressional fight to delay increasing flood insurance premiums is currently mired in the federal budget stalemate. Most of the Louisiana congressional delegation sent a letter to congressional leaders Monday asking that a one-year delay of upcoming flood insurance rate increased be included in any federal budget stopgap approved this month.
Language to delay by one year the National Flood Insurance Program premium increases on “grandfathered” properties is currently written into both the House and Senate Homeland Security funding bills thanks to the Louisiana congressional delegation.
But the partisan fight over total federal spending levels is holding those bills and other appropriations bills hostage. The delegation is pushing for a delay to the NFIP rate hikes to also be written into any short-term budget compromise, called a continuing resolution, which may be needed to avoid a partial government shutdown at the end of September.
U.S. Sen. Mary Landrieu, D-La., said the GNO, Inc. report helps with that fight.
“The report released today provides additional, important data to inform our ongoing efforts to fix flood insurance and make it more affordable,” Landrieu said in an email response to questions.
U.S. Rep. Bill Cassidy, R-Baton Rouge, said he expects the issues in the report to be discussed at an Oct. 1 forum he is hosting on flood insurance with FEMA and business officials.
“As I said countless times, greater transparency is needed to uncover how FEMA determines and assigns flood risk,” Cassidy said in a prepared statement.
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