When President Obama signed the Biggert-Waters Flood Insurance Reform Act last July, it was an uncontroversial bill. Payouts after Hurricane Katrina had plunged the National Flood Insurance Program into debt — by July 2013, it was $24 billion in the red. The reform act achieved a longtime goal of economists and insurance actuaries of bringing flood insurance premiums in line with actual risk, so as not to incentivize those who buy homes in places vulnerable to flooding.
The legislation passed both houses, with strong bipartisan support. Those in flood-prone states wanted the program to remain solvent and to stop encouraging reckless development, whereas those in the country’s interior were happy to no longer, say, subsidize second homes for the wealthy in coastal areas.
But now that it’s actually time to implement the reforms, many are balking. Rep. Maxine Waters, a Democrat representing part of San Bernardino, Calif. whose name adorns the bill, released a statement describing herself as “outraged by the increased costs of flood insurance premiums that have resulted from the Biggert-Waters Act.”
“I certainly did not intend for these types of outrageous premiums to occur for any homeowner,” she continued, calling for a delay in the law’s implementation.
The law will eventually transition all flood insurance policyholders to market-based premiums that represent the true risk of living in areas prone to inundation, but it is being phased in gradually. So far, the market-based rates apply largely to homeowners who don’t use the property as their primary residence, and those houses that have been subject to repeated flooding — a total of about 250,000 people.
Another 578,000 policyholders, though, will have the new rates kick in once they sell their homes or if they suffer severe, repeated flood damage. This has led many to worry that they won’t be able to sell, or that the price that they can sell for will dramatically decrease to account for the higher premiums the new owner will face.
A separate issue is that the Federal Emergency Management Agency is redrawing its flood maps, and some people will be moved into zones that command higher insurance premiums, reflecting the real risk of flooding.
The Biggert-Waters Act was passed before Hurricane Sandy, but according to Howard Kunreuther, a University of Pennsylvania professor who has written extensively about the National Flood Insurance Program, the storm has had all sorts of consequences for the reform law. “Because of the damage,” he said, “FEMA has accelerated its mapping.” The maps released so far are only advisory — the final versions won’t come out for another year or two, Kunreuther said — which has led to some uncertainty on the part of homeowners and politicians.
While Kunreuther and other experts call the risk-based premiums a necessary reform to the program, they are equally insistent that the government needs to ease the burden for homeowners with low incomes. The Biggert-Waters Act made a provision for this, too, directing FEMA to undertake a study of ways to help homeowners who might struggle to pay the higher premiums. This study was supposed to arrive in April, but it has been delayed, angering lawmakers like Waters and local politicians.
“New York City is requesting a delay of Biggert-Waters until FEMA’s affordability study is complete,” Mayor Michael Bloomberg’s office wrote on Friday. “Until FEMA completes its study to better understand the impacts of this legislation, and designs solutions to address them it is best if the legislation does not get implemented.”
An issue brief that Kunreuther wrote alongside Carolyn Kousky at Resources for the Future advises against delaying Biggert-Waters, arguing that it could “impede the financial soundness of the [National Flood Insurance Program] and discourage policyholders from investing in cost-effective risk mitigation measures.”
Instead, Kunreuther and Kousky propose a program that combines vouchers and loans to help homeowners elevate their homes and undertake other measures to lessen the damage from future storms. Low-income homeowners would receive loans to make resilience upgrades, which would in turn lower their insurance premiums.
In some cases, the difference can be dramatic. In areas with the highest risk — so-called “V zones” that are subject to storm surges — annual premiums for $250,000 in coverage run between $13,950 and $23,150 for homes that are three feet below the base flood elevation, according to the brief. Elevating homes to four feet above the base level means the cost of coverage drops to between $2,050 and $4,150.
“The National Academy of Sciences has appointed a panel to look into means-tested vouchers,” Kunreuther told Next City, “but nothing has happened, and it won’t be completed for another two years or so. So we have this major problem, and what we’re trying to propose is something that might be put into place before that panel completes its deliberations.”
Still, while Kunreuther and Kousky have made recommendations, and the FEMA affordability study will make theirs within a few years, implementation will require the attention of lawmakers.
“A lot of things are not going to be at FEMA’s discretion,” Kousky said. “Congress is going to have to do that.”
The Works is made possible with the support of the Surdna Foundation.
Stephen J. Smith is a reporter based in New York. He has written about transportation, infrastructure and real estate for a variety of publications including New York Yimby, where he is currently an editor, Next City, City Lab and the New York Observer.