Bipartisan group of senators seeks caps on flood insurance premiums and other changes

Herb Jackson | USA TODAY Network

Show Caption Hide Caption How high should Congress let flood insurance rates rise in program renewal? Congress is considering dramatic changes to the National Flood Insurance Program, which has a $25 billion debt that its director says cannot be repaid.

A bipartisan group of six senators proposed Tuesday overhauling the National Flood Insurance Program to cap premium increases, use advanced radar to make more accurate flood maps, and offer some homeowners vouchers to pay for coverage and loans to elevate buildings.

The bill is one of several proposals pending this year for a program that insures 5 million homes and businesses but cannot repay nearly $25 billion borrowed from the U.S. Treasury to respond to catastrophic storms, including Hurricane Katrina in 2005 and Superstorm Sandy in 2012.

If Congress does not renew the NFIP before it expires on Sept. 30, home sales in flood plains would be disrupted.

"We cannot build a sustainable system by simply imposing higher premiums on homeowners," the six senators wrote in an opinion published by The Wall Street Journalon Tuesday. Led by New Jersey Democrat Bob Menendez and Louisiana Republican John Kennedy, the group also includes Republicans Thad Cochran of Mississippi and Marco Rubio of Florida and Democrats Chris Van Hollen of Maryland and Elizabeth Warren of Massachusetts.

Their bill would cap annual premium increases at 10%, compared with the 25% maximum allowed in a 2014. Families whose insurance costs exceed a percentage of their income set in the bill would be eligible for vouchers, and the bill also would provide low- or no-interest loans for work such as home elevation that would mitigate the impact of future floods.

"This legislation puts the lessons we learned after Superstorm Sandy into action, levels the playing field for policyholders, and attacks the NFIP’s rampant waste and abuse to create real savings and greater investment in mitigation and resiliency efforts," Menendez said.

To pay for it, the bill would cap at 22% the commissions paid to insurance companies that sell and service policies but take no risk on coverage because the government funds the payouts. About 31% of the premium dollars go to such payments now.

The bill also would suspend the practice of the NFIP paying $400 million annually to the federal treasury as interest for loans for past disaster response.

The bill does not take steps to encourage more private insurers to get more involved in the flood insurance market. That is a goal of several other plans being considered in the House Financial Services Committee and a feature of a bill proposed earlier this year by Louisiana’s other Republican senator, Bill Cassidy, with New York Democratic Sen. Kirsten Gillibrand.

The Cassidy-GIllibrand bill lays out a plan to transition the government program, run by the Federal Emergency Management Agency, to more private-sector competition while also attempting to prevent private companies from cherry-picking the lowest risks and leaving FEMA to cover only properties most likely to flood.

The Cassidy-Gillibrand bill would also renew the flood program for 10 years, while the Menendez-Kennedy bill would be a six-year extension.

"This legislation already has strong bipartisan backing from Banking Committee members and is by far the most comprehensive approach to reforming the NFIP," Menendez spokesman Steve Sandberg said. "We believe it has the best chance to become law."

Menendez, Kennedy, Warren and Van Hollen all serve on the Senate Banking Committee, which is responsible for writing the new bill; Cochran is chairman of the Appropriations Committee, which funds disaster relief, and Rubio and Kennedy are members of the committee.

Cochran's sponsorship is significant because the bill ignores provisions in President Trump's proposed budget that called for steep increases in flood policy surcharges and elimination of funding for mapping and elevation.

Both the Menendez-Kennedy and Cassidy-Gillibrand proposals say they would draw on the experience of Superstorm Sandy victims by tightening controls over contractors used by FEMA to process claims.

FEMA was forced to reopen appeals brought by thousands of homeowners struck by Sandy after reports that some insurers processing FEMA policies used engineering firms who underestimated damage. Under the previous law, insurers servicing FEMA policies faced a financial penalty if they overpaid claims, but not if they underpaid them.