Explainer: Putting Biggert-Waters Flood Insurance Reform Act in Perspective

Scott Gurian | November 12, 2013 | Explainer, More Issues, Planning, Sandy
Law to increase insurance rates could spell trouble for residents of the Jersey Shore

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What it is

The Biggert-Waters Flood Insurance Reform Act of 2012 makes a number of changes to the National Flood Insurance Program (NFIP),including increasing flood insurance premiums so the rates people pay will more accurately reflect their risks. Many discounts and subsidies policyholders received in the past — including those for second homes — are being eliminated or will be phased out over the next several years. The act also calls on FEMA to incorporate sea-level rise into its future flood maps.

There’s a common misperception that all these new rules are going into effect as a result of Sandy, but that’s not the case. Biggert-Waters was passed months before the storm, and these changes were already due to take place. It’s just a coincidence that Sandy happened around the same time.


Congress created the National Flood Insurance Program in the late 1960s after Hurricane Betsy hit New Orleans, causing over a billion dollars in damage. Flood insurance was nearly impossible to secure from the private market, so lawmakers felt the federal government had a duty to step in and provide help to residents along the coast. The program was set up to be self-sustaining, borrowing from the U.S. Treasury only when necessary, and it generally worked for several decades. But beginning in 2005, Hurricanes Katrina, Rita, Wilma and several other storms caused it to blow through its budget and go $24 billion in debt.

With 5.6 million policyholders depending on the NFIP and costly natural disasters becoming more common every year, many lawmakers were concerned about its long-term sustainability. Indeed, a Congressional Budget Office study found that current premium rates were not enough to cover the program’s expected costs. There were also some who compared flood insurance to a Ponzi scheme and called for the government to get out of the business. “I would say that this is a program that would make Bernie Madoff blush,” said Michigan Republican Congresswoman Candice Miller, who introduced an amendment back in 2011 to eliminate the NFIP entirely.

In the end, the Biggert-Waters Act, which passed with overwhelming support, was seen as a compromise by continuing to provide a safety net for residents of flood-prone areas while making changes to help put the NFIP back on more secure financial footing.

This was not the first attempt to try to reduce the government’s exposure to flood losses. In the early 1970s, a few years after the NFIP was created, Congress mandated that banks require residents of flood-prone areas to obtain flood insurance in order to get a mortgage.

In 1982, the Coastal Barrier Resources Act discouraged development in vulnerable areas by declaring certain parts of the coast — including what’s now Sandy Hook, Island Beach State Park, and the Forsythe National Wildlife Refuge — ineligible for federal flood insurance. The mandate had the desired effect: a US Fish and Wildlife Service study estimated that by 2010, the CBRA saved taxpayers about $1.3 billion in flood insurance payouts and flood-related repairs that would have been incurred had these lands been developed.

In 1994, the National Flood Insurance Reform Act created the Community Rating System to encourage safer coastal construction by offering substantial discounts on flood insurance premiums for communities adopting strict flood-plain management regulations. And in 2004, efforts were made to reduce insurance payouts to property owners who’ve suffered repetitive flood losses. But more than any of these past changes, the Biggert-Waters Act is seen as a complete overhaul of the way the NFIP operates.

What It Would Mean for Residents of the Shore

Insurance rates could rise dramatically over the next few years for coastal residents rebuilding their homes who don’t elevate them to comply with the new FEMA flood maps. Secondary homeowners and business owners could see their flood insurance premiums increase 25 percent a year. For primary homeowners who don’t have to rebuild as a result of Sandy, the rate increases would kick in if there’s a lapse in policy, if they suffer severe or repetitive flood losses, or when they sell their homes. That could depress real estate prices along the Jersey Shore, since new homeowners might be willing to pay less for properties if they knew their insurance premiums would be much higher.

Those who do choose to elevate can file increased-cost of-compliance claims and receive up to $30,000 from their flood insurance companies, and there are Sandy-related grants to help offset elevation expenses, but for many, it’s still an expensive proposition. Caught between spending tens of thousands of dollars to elevate or possibly spending ten thousand dollars or more per year for insurance, some residents — particularly in working class communities like Asbury Park and Union Beach — might be unable to afford to continue living along the coast. Ultimately, the Jersey Shore could become a much more expensive place to live, and there could be a huge demographic shift in the decades to come.

Efforts to Roll Back

Biggert-Waters was signed into law prior to Sandy, but the storm has drawn more attention to it. Groups like Stop FEMA Now are calling for it to be repealed, and some political leaders — including some original supporters — are responding to the backlash by introducing legislation to tone down the changes or phase them in more slowly so the shock to policyholders isn’t as great.

Congresswoman Maxine Waters — who coauthored the original act — now says she’s outraged by the insurance premium increases many homeowners are facing, and that she never intended for that to occur. “Neither Democrats nor Republicans envisioned that it would reap the kind of harm and heartache that may result from the law going into effect,” she wrote in a press release in September. Waters is pushing to postpone the rate changes for three years while an affordability study is conducted.

Governor Chris Christie has expressed similar concerns. “In light of the unprecedented circumstances faced by tens of thousands of people attempting to rebuild from the ravages of Sandy,” he wrote to Congress last May, “foisting the additional burden of a flood-insurance rate increase on home and business owners as currently proposed would be financially devastating.”

At the same time, there’s been pushback to delaying implementation, both from fiscally conservative Republican lawmakers in districts largely unaffected by the issue and from some environmentalists who say Sandy has highlighted the need for radical changes in construction and development patterns along the coast. “Artificially low rates fail to communicate the true risk of building and rebuilding along our coasts and they will put more people and property in harm’s way,” says the Union of Concerned Scientists. “It would be disastrous to keep doing things the way we always have, especially with worsening storm surge and flooding coming our way.”

An issue brief jointly published a few months ago by the University of Pennsylvania’s Wharton Risk Center and the group Resources for the Future similarly concluded that “A delay in implementing the flood reform legislation could impede the financial soundness of the NFIP and discourage policyholders from cost-effective risk mitigation measures.” The solution to addressing the affordability challenges, it determined, is not to simply offer discounts on premiums, but rather to offer vouchers in combination with low-interest loans for residents to make their homes more resilient to future flooding.