Flood insurance program was under water long before Harvey

Image 1 of / 6 Caption Close Flood insurance program was under water long before Harvey 1 / 6 Back to Gallery

WASHINGTON - Hurricane Harvey could sack the U.S. government with a flood insurance bill that exceeds the $16 billion it paid out after Hurricane Katrina in 2005, but the Federal Emergency Management Agency is only authorized to spend about half that amount.

That puts FEMA in the unenviable position of going before Congress if it must ask for more borrowing authority, at a time the agency is already caught up in a long-standing debate about whether the government needs to raise insurance premiums in flood-prone regions like Houston.

The National Flood Insurance Program, responsible for 98 percent of flood insurance policies in this country, is running a $1.4 billion annual deficit, the result of a mission that seeks to keep premiums affordable even in an era of increasing flooding.

With a debt load that now totals around $24 billion, some Republicans argue it's time to begin overhauling a program they say for too long has subsidized homeowners in flood-prone areas, encouraging developers to build in areas too risky for building permanent habitation.

"Every time you take away dirt and put concrete and asphalt in its place, you're going to exacerbate a problem," said Rep. Jeb Hensarling, R-Dallas, chairman of the House Financial Services Committee. "As a society, we're going to have to take a long, hard look."

For Houston, a city built upon flood-prone marshland, reforms could mean a dramatic hike in flood insurance rates, particularly for neighborhoods that have flooded repeatedly in recent years. How much would depend on how far reforms go and the elevation and flood history of individual properties.

LIVE MAP: Where you can do the most good





In the most flood-prone areas, homes built before FEMA first started publishing flood maps in the 1970s are paying a fraction of what they would if the government charged them based on their true risk, said Larry Larson, senior policy advisor at the Association of State Floodplain Managers.

"We know some structures would be paying premiums in the $7,000 to $9,000 range," he said. "But if their homes had been built in the early 1900s, they were probably paying $400 to $500 a year."

What both Republicans and Democrats have toyed with over the past decade is bringing premiums in line with the actual risk of flooding - shoring up the NFIP's finances while in effect encouraging people to move out of flood-prone areas.

A report by the Congressional Budget Office earlier this year found the NFIP was only collecting enough money in premiums to cover about three quarters of what it was actually paying out in claims. And with storms rising in frequency and intensity due to climate change, that gap is only expected to increase.

Over the past five years, NFIP has experienced three of the six costliest floods in its history – Hurricane Sandy in 2012, Hurricane Irene in 2011 and the widespread flooding in Louisiana last year.

At a time when Congress is already grappling with next year's budget and tax reform, any major change appears unlikely in the short term. And even in the longer term, many in Congress are reluctant to support policies that stand to force major demographic shifts in their districts.

Close to 40 percent of Americans lived within 50 miles of the coastline in 2010, a figure that is only growing, according to the National Oceanic and Atmospheric Administration.

In 2012, in the aftermath of Katrina, Congress passed legislation ordering FEMA to begin shifting the NFIP towards phasing out subsidies for the most flood prone areas. The belief was that by raising rates the government could encourage those residents to move to higher ground, with FEMA providing funds to buy out homes that were making regular claims on the NFIP.

But two years later, facing angry constituents, Congress delayed the most draconian segments of the legislation, said Laura Lightbody, director of The Pew Charitable Trusts' Flood-Prepared Communities project.

Rep. Al Green, D-Houston, whose district includes some of the city's most flood-ravaged areas, said such reforms were too costly for homeowners and government needed to accept the costs of rising floods and forgive the NFIP's debt.

"Premiums are going to be high enough," he said. "We're going to have these kind of events, the Katrinas, Harveys, Sandys, and we have to prepare ourselves for a paradigm where when we have these disasters that are catastrophic and unprecedented we have to be to be prepared to help people."

Only with scientists forecasting more and more storms like Harvey in the decades ahead, as the earth's atmosphere is impacted by rising temperatures, the cost of doing so is likely to rise considerably.

The House is now considering a package of bills, which passed out of the financial services committee earlier this year, designed to shore up the NFIP, raising premiums and fees 2.5 percent, while reducing what insurance companies can charge to administer the program.

At the same time, the legislation would begin to reduce the government's role in providing flood insurance by encouraging insurance companies themselves to underwrite flood policies themselves – something theyhad traditionally been reluctant to do.

With improved mapping technology and a rise in premiums, insurance companies are now starting to think, "maybe we can write this and compete with the federal government," said Don Griffin, a vice president with the Property Casualty Insurers Association of America.

Hensarling described the legislation as "a beginning" in making the NFIP solvent. And in an in interview this week, he said any legislation to extend the NFIP's line of credit should be accompanied by legislation reforming the program.

"I want to make sure policyholders are made whole," he said. "But we need to make sure the program is sustainable this time."

If history is any guide, he is likely to face considerable push back.

Even though most would agree people shouldn't be living in areas that flood easily and that taxpayers shouldn't foot the bill for them to do so, the upheaval of forcing them out is so great that politicians are reluctant to take make real change, Lightbody said.

"There's a little bit of a perverse incentive to continue on the path we're on," she said.