Clash over flood insurance rates sharpens days before hikes are enacted

A confrontation flared yesterday between senators and the nation's disaster agency over hikes to federal flood insurance rates poised to take hold in 11 days.

A panel of bipartisan lawmakers criticized Craig Fugate, administrator of the Federal Emergency Management Agency, for not doing more to help middle-class homeowners avoid the looming price increases approved by Congress last July.

The charge was led by Louisiana Sens. Mary Landrieu (D) and David Vitter (R), whose hurricane-stricken state ranks first nationally in the amount of claims received by the National Flood Insurance Program, at $12.3 billion. Landrieu insisted that the legislation passed last year should be repealed or radically amended.

"We made a mistake and we've got to fix it," she said in testimony at a hearing by the Senate Banking, Housing and Urban Development Subcommittee on Economic Policy.

The rising animosity toward Fugate is coming to a boil as key deadlines in the legislation known as Biggert-Waters are coming into effect. On Oct. 1, owners of repetitively flooded homes, the most subsidized policyholders in the program, will begin paying 25 percent more annually for flood protection until their rates reflect the real risk of living in frequently inundated areas.


Last year, lawmakers passed the bill, which was tucked into crucial transportation legislation, to help insulate the flood program from intensifying flood risk that has left it $24 billion in debt. One target was the decades-old subsidies that are granted to 1.1 million policyholders, constituting 20 percent of its customers, who live along hazardous shorelines.

Fugate stood firm yesterday against calls to roll back the rate increases, saying that repetitively flooded homeowners won't harden their homes if the government pays claims that exceed their premiums over and over.

"I fully believe we should stop subsidizing risk as we go forward with new construction, secondary homes or businesses," Fugate told the panel.

But he also tried to offer an olive branch to skeptical lawmakers. Fugate told them he agrees that the program should help homeowners who face sky-high rate hikes, like coastal residents whose houses are perhaps 10 or 12 feet below base flood elevation. They may have to pay as much as $25,000 a year, Fugate said.

'I need your help'

Yet he faces a problem. The legislation passed last year doesn't include any provisions to help offset price hikes, Fugate said. The only reference to affordability instructs FEMA to have the National Academy of Sciences conduct a study, which lawmakers insist must be done before the rates rise.

Instead, Fugate encouraged Vitter, one of his harshest critics, to pursue new legislation that would help people pay their claims.

"I need your help," Fugate told the lawmakers. "There is no way to build affordability in."

It's unclear how that could be done, but some experts, like Howard Kunreuther, a professor at the Wharton School, and Carolyn Kousky, a fellow at Resources for the Future, propose that lower-income homeowners receive vouchers that help pay for their policies. As a requirement, the homeowners would also receive low-interest loans to harden their houses against flooding, potentially reducing the program's exposure to financial loss.

Vitter and other senators were displeased with Fugate's response. They suggested that he could forestall the painful rate increases without the help of Congress -- or at least wait until the affordability study is complete before implementing them.

"We don't have an affordability study, and yet we're making people pay unaffordable rates," said Sen. Charles Schumer (D-N.Y.), whose state was inundated during Superstorm Sandy 11 months ago.

Climate change expected to pinch program

The impasse reflects the knotty prospects of raising rates in a federal insurance program that's overseen by lawmakers who are elected by constituents who face the threat of flooding.

From a policy perspective, many lawmakers and interest groups see the logic of coupling rates with the true levels of risk. That could help the program pay its claims, rather than turn to Congress for increased debt levels. That, in turn, might help the program build capital to buy reinsurance against outlier events, like Hurricane Katrina.

There are other reasons for shedding suppressed rates, observers say. Access to low premiums could encourage construction in floodplains, even as they're expected to expand with climate change.

The flood program released an overdue report in June warning that there's a 50 percent chance that floodplains nationally will grow by up to 45 percent by 2100. The impacts of climate change, like increased precipitation and sea-level rise, are the main reason behind the anticipated growth, with population increases also having an effect.

The report also found that the program will likely be paying more damage claims for each policy. Flood losses are expected to increase between 10 and 15 percent by 2020, and up to 40 percent by 2080.

As senators were arguing for rate freezes, some outside groups were pushing the other way.

"It may be politically expedient and popular locally to delay map modernization or delay rate increases," Steve Ellis, vice president of Taxpayers for Common Sense, said in his written testimony. "But what may make good local politics generally makes bad insurance policy."

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