The National Flood Insurance Program, which underwrites policies for thousands of New Jersey homeowners, is up for renewal later this year, and a bipartisan group of federal lawmakers is calling for major reforms that incorporate lessons learned in the wake of Superstorm Sandy. The program faced a barrage of criticism after Sandy, including for questionable claims’ denials and delayed payments.
The sweeping changes proposed by New Jersey Democrat Robert Menendez and other U.S. senators are aimed at making the flood insurance program more responsive to homeowners and taxpayers instead of to private-sector insurance companies and agency contractors.
They include capping annual premium increases that homeowners can face; 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-interests loans for homeowner flood-mitigation projects. It would also encourage the use of more modern flood-mapping technologies.
Learning lessons from Superstorm Sandy
The reform effort won praise yesterday from advocates for New Jersey’s Sandy victims after it was announced during a news conference held in Washington, D.C. The current law authorizing the flood insurance program will expire after a September 30 deadline unless a reauthorization bill is adopted.
“We have to turn the lessons we learned after Sandy into action, and that’s exactly what the (reauthorization) does,” Menendez said during the news conference.
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 agency, 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.
10% cap on annual rise in premiums
Menendez said the proposed reauthorization seeks to ensure that future flooding victims don’t have to face a “manmade disaster” after facing down a natural one like Sandy. “Americans deserve a flood insurance program that is sustainable for taxpayers, affordable for homeowners and accountable to everyone,” he said.
Right now, flood insurance premiums cannot rise by more than 25 percent annually, but the 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.
Compensation for private insurance companies participating in FEMA’s “Write Your Own Policy” program 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 strict payment deadlines when claims are filed, and ban outside contractors from using legal 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.
To help strengthen the flood insurance program’s overall finances, the reauthorization would also 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 last decade, consuming roughly 10 percent of the revenue collected through premiums, the senators said.
Freezing those payments would free up funds 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. The senators yesterday cited national statistics that indicate such projects generate a $4 return for every $1 spent.
“Our bill shifts our entire flood-response paradigm from one that solely focuses on rebuilding in the aftermath of storms and floods to one that actively works to prevent them,” Menendez said. “These investments in resiliency will be worth every penny, and then some.”
“It’s a lot cheaper to pay on the front end than on the back end,” said U.S. Sen. John Kennedy, a Republican who represents Louisiana, a state that was hit hard by 2005’s Hurricane Katrina. Kennedy, one of three Republicans to sign onto the bill as a primary sponsor along with Menendez and other Democrats, called the reauthorization proposal “incredibly important,” citing the September 30 deadline for renewal.
“It is urgent that we act,” he said.
Krista Sperber, a co-founder of the New Jersey Organizing Project, a group that has been advocating for years for Sandy victims, credited the proposed reauthorization for incorporating “hard lessons” that were learned through New Jersey’s experience with FEMA and the flood insurance program.
“It reins in the private insurance companies who have made record profits at our expense, stops them from being reimbursed by (taxpayers) when we fight their abuses in court, and creates penalties for underpayment, which were rampant after Sandy,” Sperber said. “This legislation creates pathways to allow families to prevent a flood disaster and get out of harm’s way, saving us incredible loss and emotional distress, and saving taxpayers money,” she said.
Kevin Walsh, executive director of the Fair Share Housing Center, another agency that has worked on behalf of Sandy victims, said by limiting the annual increases in insurance premiums the proposal would also help “keep the Jersey Shore affordable to working families.”