Flood insurance rates could rise for hundreds of thousands of homeowners under proposal

Dale Hickman, left, and Braxton and Pat Hyatt walk down Coda Road in the Helena community in Jackson County on Friday Aug. 31, 2012 after rain from Hurricane Isaac caused flooding in the area.
Dale Hickman, left, and Braxton and Pat Hyatt walk down Coda Road in the Helena community in Jackson County on Friday Aug. 31, 2012 after rain from Hurricane Isaac caused flooding in the area. jcfitzhugh@sunherald.com File

Congress is considering sweeping changes to the debt-laden National Flood Insurance Program that could jack up flood insurance rates for hundreds of thousands of homeowners, including along the Mississippi Coast.

Many Coast homes and businesses have been raised above flood elevations since Hurricane Katrina, minimizing flood risk, while others relocated out of harm’s way. But some property owners built back, or still live in homes, that sit below flood elevations reflected on Flood Insurance Rate Maps updated after Hurricane Katrina.

NFIP’s practice of “grandfathering” premiums allows homeowners to continue paying relatively low insurance rates even after updated rate maps show higher flood risks. The practice is based on the concept that people with homes built to the required codes at the time of purchase shouldn’t be penalized when those codes change.

A proposal from Rep. Sean Duffy, a Wisconsin Republican, would raise rates for those “grandfathered” properties.

Duffy agreed the change could deal a financial blow to some homeowners, over time. But the current practice, he argued, is unfair to households that live outside of floodplains.

The proposal comes at a time when Congress is once again trying to deal with a mounting debt that NFIP faces: $24.5 million as of April, according to a report from the U.S. Government Accountability Office. Hurricanes Katrina and Sandy account for much of that debt, but other floods have contributed.

The Federal Emergency Management Agency administers NFIP, which is supposed to be self-supporting through premiums collected.

The GAO report concludes: “FEMA is unlikely to collect enough in premiums to repay this debt. Eliminating the debt could reduce the need to raise rates to pay interest and principal on existing debt. However, additional premiums still would be needed to reduce the likelihood of future borrowing in the long term.”

“Raising premium rates could create affordability issues for some property owners and discourage them from purchasing flood insurance, and would require other potential actions to help mitigate these challenges.”

Duffy said he’s open to amending his legislation to address affordability concerns “ but not if it keeps the current subsidy system in place.

“We are not talking about the poorest people in the country. You have subsidies going to these wealthy homeowners on the coast.”

Congress has until the end of September to reauthorize NFIP.

Last month, a key House committee approved seven pieces of legislation aimed at improving the solvency of the insurance program.

The full House is expected to consolidate and vote on the whole package “including the part that would increase insurance rates “before the August recess, but affordability may hamper its passage. If the House and Senate can’t pass and reconcile their two reauthorization bills, Congress could miss the Sept. 30 deadline, throwing the housing market into uncertainty.

Under Duffy’s bill, as now written, no new grandfathering would be allowed after four years, and premiums on existing grandfathered policies would rise 8 percent yearly until they reach full-risk rates.

No one knows for sure how many households could be affected by the change, but Duffy said FEMA has told him it could number 500,000 or higher. The increased premium costs could be sizable.

For example, FEMA’s rate tables show that a home in an “A Zone” of Special Flood Hazard Area “ typically near a lake, river or coastline “that now costs $3,000 a year in insurance premiums could rise to $5,000 a year if FEMA determined that expected flood elevations were two feet higher than previously mapped.

Federal flood insurance has long been the subject of a congressional tug-of-war, especially following Hurricane Katrina in 2005 and Hurricane Sandy in 2012. In 2005, FEMA borrowed more than $17 billion from the U.S. Treasury to pay claims damages, and Hurricane Sandy triggered another $9 billion in borrowing.

As of late 2016, close to five million households nationwide held federal flood insurance policies, according to FEMA. Florida was the largest, with nearly 1.8 million policy holders, followed by Texas with 608,000, Louisiana with 472,000 and California with 295,000.

The issue is complicated by the fact that many U.S. cities were originally built along coastlines and rivers and are now deemed vulnerable to extreme flooding. Scientists say that with sea level rise and stronger storms expected from global climate change, the U.S. Treasury is to sure to take future big hits from flood disasters.

To reduce the mounting debt, Congress in 2012 passed the Biggert-Waters Flood Insurance Reform Act, which was “designed to allow premiums to rise to reflect the true risk of living in high-flood areas.” But two years later, following an outcry from affected homeowners, Congress scaled back the premium rate increases.

After President Trump took office, federal debt hawks saw a chance to revive provisions in the 2012 legislation, including ending “grandfathering.” That provision is part of the 21st Century Flood Reform Act that Duffy introduced.

Some of the House package has wide support from consumer, environmental and taxpayer groups. These include provisions aimed at removing obstacles for homeowners to purchase private flood insurance, improving the FEMA claims process, discouraging new development in floodplains and helping communities “mitigate” existing risks, such as elevating structures above expected flood depths.

There’s also agreement that FEMA needs to update its process for revising flood maps, although that goal could be complicated by Trump’s proposed 2018 budget, which calls for cuts to the agency’s mapping program.

Duffy, a former prosecutor and ESPN commentator, said his legislation is based on the principle that people should approach home purchases knowing that insurance conditions could change. He likened it to a consumer buying car insurance, knowing that premiums could go up if a teenager is added to the policy.

But Duffy also said he’s aware his bill faces opposition and he’s working to address the concerns about grandfathering.

“I am not a purist on this,” he said. “I want to get a bill that can pass.”

Staff Writer Anita Lee contributed to this report.