Data gaps are preventing government officials from understanding how rising prices for federal flood insurance will affect policyholders, potentially challenging efforts to repair a program that’s $23 billion in debt.
The National Flood Insurance Program (NFIP) is open to anyone in an eligible community, no matter how much someone earns or how high or low his or her risk of flooding is. So officials have never asked for policyholders’ level of income, the value of their homes or other key information that’s needed to evaluate changes to the program, according to a report by the National Academy of Sciences.
That’s creating challenges as the Federal Emergency Management Agency tries to enact congressionally required rate hikes for some of the riskiest properties covered under the program. There are more than 5 million policyholders nationwide, but the report largely focuses on about 500,000 homeowners who are losing long-held discounts, said Leonard Shabman, an economist with Resources for the Future who oversaw the report.
"So you need information about those people," he said. "If you’re talking about affordability, you need to know their risk, you need to know their premiums, you need to know their income status or their wealth status, and you need to know how [those] are going to change under different kinds of policies.
"These are all data gaps that need to be filled," he added.
The affordability question was a key challenge in 2012 when Congress passed the Biggert-Waters Flood Insurance Reform Act. The measure sought to phase out subsidies that helped drive the program into debt. But lawmakers backtracked after coastal residents and real estate groups expressed concern that households would see rapidly rising insurance costs, diminishing property values or, if policyholders drop coverage, increasing exposure from storm damage.
A chief complaint in Congress was that FEMA had not finished an "affordability study" to determine how lower-income policyholders could be protected from the dismantling of subsidies. This is the second report required by lawmakers to outline how that might be accomplished.
It suggests that FEMA could begin collecting data in phases, or perhaps piggyback on other sources like the IRS and census data. But it’s clear that the agency won’t have a complete picture of affordability before the NFIP is up for reauthorization in 2017.
"But you’re not gonna do it in the near term," Shabman said.
Sea-level rise is steady; risk management isn’t
That might mean that lawmakers won’t have enough information to resume eliminating grandfathering, or the practice of providing subsidies to older homes built in areas before they were designated a floodplain. Biggert-Waters required subsidies for grandfathered homes to be phased out, but lawmakers reinstituted the discounts under the Homeowner Flood Insurance Affordability Act enacted in 2014.
Climate advocates say subsidized prices can encourage coastal habitation in areas increasingly exposed to sea-level rise and flooding.
"Congress requires FEMA to give breaks and discounts on flood insurance based on factors that have nothing to do with how likely a flood may be, or the owner’s ability to pay actuarial rates for flood insurance," Rob Moore, a senior water policy analyst with the Natural Resources Defense Council, said in an email. "Quite the contrary. Over the years Congress made flood insurance cheaper for a lot of properties that are likely to be flooded. It’s no surprise the program is $23 billion in the hole."
The report suggests that the NFIP should begin the long process of collecting that information. The next step would be to construct a microsimulation computer model, which could be used to quickly determine how tweaks to insurance pricing would affect the pocketbook of policyholders.
That might have major implications for a program that has never considered the level of wealth of its policyholders. If such a model were created, the program would know, for example, how many wealthy property owners are receiving discounted insurance. That’s a mystery right now.
Controls that could help
That could give Congress valuable information. Lawmakers could tailor the program to help people who earn a certain amount, or whose homes are valued at a specific level.
"You could see — I’m exaggerating to make a point — how many $10 million properties were getting discounted rates and … how many people living in mobile homes in the South or whatever were getting the discounted rate. And they may tell you something," Shabman said.
"The question that FEMA can’t answer right now is what’s the distribution of that [wealth]," he added. "And if you knew the distribution of that, then the Congress could say to FEMA … nobody in this category is going to receive assistance."
Susan Hendrick, a FEMA spokeswoman, said the agency is reviewing the report.
"We commend the Academy for their work and look forward to using information from this study to help inform our work to better protect Americans from the most common and costly disaster we face in America," she said in an email.
The program plunged into debt after Hurricane Katrina 10 years ago and, more recently, after Superstorm Sandy in 2012. Since then, Congress has sought detailed information about its policyholders as lawmakers consider legislation to reform the program.
This summer, a separate report found that FEMA doesn’t know the elevation of 750,000 homes receiving discounts. The program uses the height of a home’s first floor to help establish the price of insurance and understand the likelihood of it flooding (ClimateWire, July 2).
The National Academy of Sciences’ report released on Friday follows its initial study on affordability in March. The springtime document suggested that FEMA could incorporate means testing into its program. It points to home construction loans and grants, premium vouchers, and the use of higher deductibles as potential ways to keep the cost of coverage down (ClimateWire, March 27).
Most of the options would be tied to the income level of policyholders.