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Revised Federal Flood Insurance Program Looks to Sandy for Lessons Learned

Current NFIP is underwater with debt, overhaul would address that problem, be more responsive to homeowners, and cap the cost of annual increases

black mold flood
Credit: Faith Liguori

With a hard deadline for reauthorizing the National Flood Insurance Program now a little more than two months away, federal lawmakers from New Jersey are backing a bipartisan proposal that would both renew the program and overhaul it in a way that incorporates lessons learned from Superstorm Sandy.

The flood-insurance program, or NFIP, underwrites policies for thousands of New Jersey homeowners who live in coastal zones or other flood-prone areas, but it was roundly criticized by New Jersey storm victims in the wake of Sandy, for what they said were questionable denials of claims and delayed payments.

The program is also deep in debt, partly because of the flood of claims filed in the wake of Sandy, making it a major fiscal headache for Congress.

Affordable and responsive

A reauthorization bill that seeks to make the NFIP both more affordable and more responsive to homeowners was formally introduced in the House of Representatives earlier this week by U.S. Reps. Bill Pascrell (D-9th) and Frank Pallone (D-6th). Their legislation mirrors a bipartisan bill in the Senate that was unveiled last month by U.S. Sens. Robert Menendez (D-NJ) and John Kennedy (R-LA). Time is also of the essence for the reauthorization effort since the NFIP is facing a September 30, 2017 expiration date.

The changes proposed in the six-year reauthorization bill include capping annual premium increases to homeowners; freezing interest payments that the program owes the federal government for funds that have been borrowed to pay out claims; and limiting profits that private-sector insurance companies can make while underwriting program policies. The proposed reauthorization also seeks to give the flood-insurance program a more preventive approach by offering incentives like low-interest loans for homeowner flood-mitigation projects. It would also encourage the use of more modern flood-mapping technologies.

The two congressional sponsors stressed that the proposed changes would address a number of the problems that arose in New Jersey following Sandy, which devastated many parts of the state in 2012.

“In the wake of the storm, too many of my constituents found that, after responsibly paying for their flood insurance, their policy failed to provide the coverage they needed and deserved when they needed it the most,” Pallone said.

“In many cases, it took years for them to work through the claims review process to repair the damage done to their homes, businesses, and lives,” Pascrell said.

Periodic renewals of the program

Created nearly 50 years ago, the flood insurance program is administered by the Federal Emergency Management Agency, but it is not permanently authorized and is instead subject to periodic renewals. More than 230,000 New Jerseyans currently hold flood insurance policies through the NFIP, and over the past four decades residents here have received almost $6 billion in payments from the agency to help rebuild after devastating storms like 2012’s Sandy.

But the program came under fire in New Jersey in the wake of Sandy as storm victims accused the agency and its contractors of underestimating claims, delaying payments, and wrongly denying policyholders. FEMA eventually agreed in 2015 to reopen the claims of nearly 150,000 Sandy victims to ensure they were treated fairly.

Currently, flood-insurance premiums cannot rise by more than 25 percent annually, but the proposed reauthorization would cap the annual increases at 10 percent. That change is designed to help keep the cost of the insurance affordable and keep homeowners from dropping it.

Write your own

Compensation for private insurance companies participating in FEMA’s “Write Your Own” program, which allows them to write and service some of the flood-insurance policies, would also be capped at 22 percent of premiums instead of the 31 percent that the agency currently allows. The reauthorization would also hold FEMA to maintain strict payment deadlines when claims are filed, and ban outside contractors from using predatory tactics to prevent or delay the paying-out of legitimate claims.

Funding would also be provided to help encourage the use of more advanced mapping technologies to improve flood maps in communities across the country. And to help strengthen the flood insurance program’s overall finances, the reauthorization would freeze interest payments the program has been paying to the federal Treasury.

In all, the program is an estimated $23 billion in debt, according to a recent U.S. Government Accountability Office report. It has paid about $4 billion in interest to the Treasury over the past decade, consuming roughly 10 percent of the revenue collected through premiums. Putting a freeze on those payments is designed to generate revenue that could be used to help focus the agency more on preventive efforts, including low-interest loans to homeowners for elevation projects and aid to communities for large-scale flood-mitigation projects.

Praise for bipartisan bill

The bipartisan reauthorization bill won praise from groups in New Jersey that have been working with Sandy victims after it was rolled out by Menendez and Kennedy last month. But there have also been other proposals to renew the program floating around Congress that would make different changes to the program, including by using more private companies to underwrite policies.

Pascrell and Pallone said the bipartisan proposal, which is being called the Sustainable, Affordable, Fair and Efficient, or SAFE Act, is the best way to go.

“Unlike the partisan legislation coming from some corners in the House, the bipartisan SAFE NFIP Act makes needed reforms based on the lessons learned from the devastation of superstorm Sandy,” Pascrell said.

“I look forward to working with my colleagues on both sides of the aisle to fight for this bill and our constituents,” Pallone said.

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