Familiar themes, elusive solutions
Last Thursday, the US Senate Banking, Housing and Urban Affairs Committee held a hearing entitled, “Reauthorization of the National Flood Insurance Program (NFIP): Local Perspectives on Challenges and Solutions.” This is the latest look at the NFIP, whose funding has been extended into March, along with most of the federal government. The hearing included a panel of people who have studied and/or been personally-impacted by catastrophic flooding. They included Mayor Steve Patterson of Athens, Ohio; Michael Hecht of Greater New Orleans, a regional EDC; and Dr. Daniel Kaniewski, Managing Director for Public Sector at Marsh McLennan, the global risk management and insurance brokerage firm.
Committee Chairman Senator Sherrod Brown (D-OH) commented that the NFIP’s high premiums hurt those in lower socioeconomic areas. Brown’s ideas to address NFIP’s costs ranged from increasing flood mitigation and improving floodplain mapping accuracy to wiping clear NFIP’s $20.52 billion debt (slated to cost $8 billion in interest alone over the next decade) and allowing policyholders’ premium to be determined using a means test scale. Ranking Member Senator Tim Scott (R-SC) agreed with Chair Brown, suggesting NFIP focus more locally, strongly opposed an NFIP lapse, and touted his bill, the Repeatedly Flooded Community Act (S. 1417), so that flood-prone communities could stop the cycle of repeated flooding/rebuilding.
Senator Jon Tester (D-MT) expressed frustration over NFIP’s 28 extensions, its rising costs, and the harmful effects on policyholders. He wants the risks priced so they are more affordable. Mr. Hecht responded that 30% of the program’s resources are going to 1% of claimants who have repetitive losses and if these homeowners don’t attempt to mitigate the flooding, they should not be allowed to be an NFIP policyholder.
During a discussion about purchasing flood insurance at the time of a new home sale, Dr. Kaniewski cautioned that some home buyers believe flood insurance is included in the cost of the new home. Committee members stressed education and marketing to clear up misconceptions. Senator Bob Menendez (D-NJ) advocated for his bill, the NFIP Reauthorization and Reform Act of 2023 (S.2142), to cap NFIP rates at 9% versus the current 18%. He said middle America can’t afford NFIP coverage and the program is estimated to lose approximately 1 million policyholders by 2023. Senator John Kennedy (R-LA) criticized Risk Rating 2.0, saying the platform is not transparent and has not delivered rate decreases as promised.
All of the panelists supported flood mitigation measures as the single best solution to reducing NFIP’s risk of loss and reducing the amount of coverage policyholders would need. Florida and Alabama have strong mitigation programs with incentives for homeowners to take advantage of them. Louisiana is looking to create a mitigation program.
LMA Newsletter of 1-29-24
