FEMA prepares to move forward with catastrophic flood rate hikes
25th November 2013 · 0 Comments
By Christopher Tidmore
U.S. Senator Mary Landrieu has trumpeted the bipartisan, bicameral coalition she has constructed to fight catastrophic flood insurance rate hikes under the Biggert-Waters Act. It includes her likely 2014 GOP re-election opponent Rep. Bill Cassidy. Yet, her effort to enact a two year delay, leaving time to study the impact of the planned increase in insurance premiums, hit a road block last Tuesday as FEMA’s Administrator testified that the Agency still plans to implement the law by 2014. And, that his staff lacks the resources to even study the matter.
Craig Fugate’s testimony put new urgency into a drive by State Treasurer John Kennedy to convince the Louisiana Legislature to create a state-run flood insurance company. Similar to the way the legislature created corporations that offer property insurance and worker’s compensation coverage, a Louisiana State-chartered corporation may be the only means to forestall skyrocketing rates, Kennedy argued.
He urged the State House and Senate to take up the matter this Spring. By that point, new FEMA flood maps promise to drive Federal Flood Insurance rates for some in coastal regions and river-plains across the nation from $500 to over $15,000 per year. Louisiana coastal communities outside the Levee system are devastatingly impacted. The impact is so dire that State Insurance Commissioner Jim Donelon personally lobbied President Obama on the issue last week.
Democratic Congresswoman Maxine Waters, one of the architects of the original bill, publicly backed Sen. Landrieu’s proposal to delay and re-evaluation. Rep. Waters noted that while FEMA had told her that rates would go up for some subsidized homeowners, she had no idea that they would rise so astronomically. In a November 8 speech here in Louisiana, the Congresswoman said, “The Biggert-Waters legislation was designed to address a $24 billion deficit and ensure millions of American homeowners could continue to purchase flood insurance. But FEMA’s poor implementation, inaccurate mapping and incomplete data has led to unreasonable and unimaginable increases in premiums.”
A two-year delay to study the matter seemed in order. However, at a House Financial Services Committee Subcommittee hearing on Tuesday, November 19, FEMA Administrator Craig Fugate confessed that the study was not completed because the amount of funding and timeframe given for the affordability study would not be sufficient. “How do you determine what is affordable at what income at what level?” Fugate said. “That is not something FEMA does.”
The heart of the controversy is the National Flood Insurance Program, a federal program that allows homeowners to buy flood insurance through the government. The program is currently about $24 billion in debt after Hurricane Katrina and last year’s Superstorm Sandy. The Biggert-Waters Act was passed to stabilize the cash-strapped NFIP by phasing out subsidized flood insurance and allowing them to increase by 20 percent to 25 percent per year until they reflect the actual cost of flood risk.
That meant some homes in flood zones could end up with yearly flood insurance premiums topping $25,000. Homes would be unaffordable. Mortgages require flood insurance, and the excess costs would make them unpayable. Without some form of grandfathering, Landrieu told The Louisiana Weekly, “entire communities could die.“ The Homeowner Flood Insurance Affordability Act, introduced in late Oct., would delay increasing the cost of flood insurance caused by the Biggert-Waters Act until two years after FEMA completes the affordability study mandated by the bill passed last year.
“Biggert-Waters was designed to update the NFIP and put it on the path to stability,” Waters said in a statement to the press. “The law was supported on a bipartisan basis. Neither Democrats or Republicans envisioned they would inflict the pain and concern that many Americans are experiencing.”
Treasurer John Kennedy suggest that Louisiana does not have time to wait, and should consider getting in the business of offering flood insurance to its residents, to ease concerns of these skyrocketing federal flood insurance rates. “I’m going to pray that Congress gets its act together, but there needs to be a conversation now about a Plan B, a state plan,” Kennedy said in a speech to the Houma-Terrebonne Chamber of Commerce.
That Plan B could take the form of a fund or state-backed insurance program to totally or partially offset coverage under the National Flood Insurance Program, the Treasurer outline. “Maybe it would cover the first $50,000 and FEMA covers the rest…It lessens risk on FEMA and lowers the premium.”
The details on the underwriting and insurance risks remain sketchy, but Kennedy argued that the legislature cannot wait to take up the matter.
“It is difficult to afford. But the real issue is, can we afford not to do it?” Kennedy asked.
People and businesses in Louisiana have 500,000 policies through the National Flood Insurance Program, the third highest number in the country. With the proposed rate hikes, Kennedy said flood insurance costs could devastate south Louisiana’s economy, with consumers having little to spend anywhere else. That is, if they could keep their homes at all.
Still, the argument has done little so far to sway either Gov. Bobby Jindal or Insurance Commissioner Jim Donelon to back the position. Both worry about the expense and liability the state would assume.
Donelon, however, in a meeting on Tuesday with President Barack Obama at the White House reportedly raised the matter of the rising flood premiums and Biggert-Waters. Obama had called State Insurance Commissioners to the Oval Office to discuss how people could keep their current health policies, despite mandates under the Affordable Care Act.
Donelon attended as president of the National Association of Insurance Commissioners, but almost uniquely amongst the chief regulators of the insurance industry in each of the states, he possesses little power to set insurance rates. Instead when his turn came, the La. Insurance Commissioner used his time to press the President on local concerns about changes to the flood insurance program. While neither the White House nor Donelon provided many details about the exchange, the Commissioner did hand Obama a letter formally asking the president to administratively delay the flood insurance program because the changes could lead to dramatic rate increases for many Louisiana residents.
In other words, do for Biggert-Waters what the President attempts to do for existing health policy holders who do not meet the standards of the ACA, and are faced with losing their insurance next year: Delay.
This article originally published in the November 25, 2013 print edition of The Louisiana Weekly newspaper.