Middle ground forming in flood insurance debate

By Xerxes Wilson
Staff Writer

Published: Wednesday, November 20, 2013 

As Congress kicks around proposed delays to reforms to the National Flood Insurance Program, middle ground is beginning to form in the question of how to address affordability for homeowners hit with heavy rate increases.

That effort to compromise has come in the suggestion that there should be some sort of means-tested assistance for those who find themselves facing substantial increases they can't afford.

The Biggert-Waters Act of 2012 was passed with the intent of phasing out discounts for flood insurance and bringing rates closer to reflecting actual risk.

Opponents say the reforms could cause financial ruin for places such as Lafourche and Terrebonne parishes that sit largely in flood zones.

Those in favor of the reforms argue taxpayers should not have to continue to pay for the program that is more than $20 billion in debt.

With rate changes taking effect for some this year, homeowners are being quoted annual cost increases of more than $15,000.

The debate was hashed-out Tuesday in the House Financial Committee with most participants agreeing affordability needs to be addressed. But how and when are the questions.

Local interests have supported delaying the reforms until an affordability study can be complete.

Others argue delay would continue to put taxpayers at risk. But they said those who can't afford the new rates and have built to the Federal Emergency Management Agency's standards should receive assistance.

“The cumulative impact of the reforms was too much and too fast for many property owners. ... We can't forget that regardless of how we deal with that issue there is a broader affordability problem brewing,” said Chad Berginnis, executive director of the National Association of State Floodplain Managers.

Berginnis noted average flood insurance rate for those required to have insurance went up 17 percent just this year.

The association has suggested a program that would pay for all or most of the cost increases depending on the homeowner's income. The goal of such a program would be to have people aware of their full risk but receive help paying for it through a voucher or loans if they take corrective actions.

“Superstorm Sandy has shown that the basic principals of Biggert-Waters forms work,” Berginnis said. “Once people are aware of an accurately priced risk they will take mitigation actions such as elevating flood proofing or relocating out of harm's way.”

Terrebonne Parish President Michel Claudet said he didn't think such a program would be necessary if flood maps and the rates set by FEMA accurately reflect risk.

“Right now, I think they have incorrect computations of actual risk,” Claudet said. “Getting our maps right is going to make a big difference when we look at what is really actuarial rates.”

Terrebonne Parish has facilitated the elevation of several hundred homes in the parish through FEMA grants. Claudet said this process could be much smoother to encourage more participation and added a voucher program for elevating homes to lower rates would take too long and be too expensive.

“It's kind of like a pay me now versus pay me later. ... I don't know if it could work,” he said.

Michael Hecht, president and CEO of Greater New Orleans Inc., said the possibility of means-testing is something that is being looked at but hasn't been thoroughly studied.

“I think there are two aspects to the solution that are critical. One is having accurate maps that reflect true risk. Then the second is having affordability or means testing to ensure that folks who have played by the rules don't get burned,” Hecht said.

Current efforts in Congress seek to delay the reforms while FEMA completes an affordability study and/or it's time for Congress to reauthorize them. While there is agreement that affordability should be addressed, some say delay is unnecessary.

There is “a fear that the transition cost for a small number of policies may drive policy instead of the entirely desirable reforms as a whole. I urge Congress to look at targeted transition relief for those that merit it ... and not put off the reforms the programs need,” Douglass Holtz-Eakin, president of the American Action Forum, said at Tuesday's hearing.

Hecht disagreed, saying the affordability study would aid in the creation of a possible means-testing program.

“The first thing we have to do is stop the current program and stop the bleeding that has already started,” Hecht said.