Editorial: Nation’s flood insurance program needs an overhaul. This is a good start.
The federal program to provide property owners with insurance against flooding has long been drowning in red ink, and it’s past time for major reforms that would place this important program on sounder fiscal footing and reward governments and property owners who are adapting to greater flood risks, while encouraging others to get on board.
All mortgages that flow through federally regulated lenders — the vast majority, in other words — require flood insurance for properties in flood-prone areas, and private insurance is often unavailable. Stabilizing the debt-laden National Flood Insurance Program has been a political football for years, though the game has mostly involved a lot of punting on the part of Congress, which has authorized a series of short-term extensions over the years instead of taking on the difficult work of fixing the beleagured program.
As The Wall Street Journal reports, the Senate Banking Committee recently held a hearing on what’s being called “Risk Rating 2.0,” which is the Federal Emergency Management Agency’s plan to revise the program. This new rating system would scrap current premium pricing that’s based on flood zones devised in 1978 and replace it with a formula that tailors premium prices to each property. FEMA can update its insurance formula without congressional approval.
It would mean increases for 77% of policyholders, but it would better offset the costs of the flood program, which paid $1.2 billion in claims last year. The new formula also would shift the burden toward owners of more valuable properties, The Journal noted.
About two-thirds of those whose homes were built before the federal flood insurance rate maps took effect in 1974 would see their premiums drop. Many of these homes are owned by lower-income families.
These changes represent a sensible step toward reform that would put the insurance program on better fiscal ground. It owes more than $21 billion to the federal government, and taxpayers in non-flood-prone areas essentially are subsidizing homeowners in places that tend to flood.
U.S. Sen. John Kennedy, R-Louisiana, is among a handful of senators who have attacked the premium increases that are scheduled to begin Oct. 1, but there has been little support for his effort to block them from taking effect. President Joe Biden also endorsed the increases in his budget earlier this year.
The Journal noted that Biden’s budget also proposed $358 million in new subsidies for the flood program, so FEMA’s change would not end the federal subsidy, only reduce it — a small step toward fairness and solvency.
The National Flood Insurance Program is not collecting sufficient fees to cover its losses. If nothing changes, it stands to become even less solvent as sea levels rise, storms grow stronger and coastal development continues to flourish.
Here’s what the new rates would mean in South Carolina, according to FEMA: Of the 208,600 flood policies now in force, 53,215 would see lower premiums; 137,604 would see an increase of $120 a year or less; 12,469 would see a premium increase between $120 and $240; and 5,276 would see more than that. Nobody likes a premium increase, but most would be relatively modest.
The several thousand who will see major increases likely own properties that have flooded repeatedly and need serious rethinking. To that end, Republican Sen. Tim Scott of South Carolina and Democrat Brian Schatz of Hawaii have sponsored the Repeatedly Flooded Communities Preparation Act that tries to break the costly cycle of repeated flooding and rebuilding by providing cities and counties with more tools to take proactive steps to reduce flood risks. The city of Charleston recently worked with the federal government to buy and tear down about 40 of the most flood-prone homes in the city, and more along those lines must be done.
“I’ll never forget going door-to-door in Sumter, Horry County, and other areas of our state after the 2015 floods and seeing firsthand the devastation faced by so many of our neighbors,” Sen. Scott said. “Flood-resilient infrastructure and thoughtful pre-disaster mitigation efforts are critical to the Palmetto State, and our bill will help prepare communities to safeguard their homes and businesses before disaster strikes.”
The legislation would require FEMA to develop criteria to govern local repeat-loss plans and determine appropriate sanctions for local governments that fail to act; it also would let FEMA target special assistance to communities working to address their repeatedly flooded areas.
The bill could be another promising step, though the ultimate details will matter. For instance, the federal government should not weigh incentives so heavily toward reducing the risk for insured properties that cities have less motivation to fix flooding problems in poorer areas, such as Charleston’s East Side, or institutional areas, such as the Medical District, because there are fewer properties there with flood insurance.
As we’ve long argued, reform of the outdated flood insurance program is overdue; the Risk Rating 2.0 and the Repeatedly Flooded Communities Preparation Act won’t necessarily win the game, but they could prove to be meaningful scores.
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