Harvey damage adds urgency to flood insurance debate

Hurricane Harvey’s devastating flooding comes as Congress scrambles to keep the federal flood insurance program running past Sept. 30.

Lawmakers in both chambers are working on renewing and revamping the debt-riddled National Flood Insurance Program (NFIP) before it expires at the end of September, with billions more in payouts likely on the way.

Despite progress on several bipartisan bills to cut costs and modernize procedures at the NFIP, a bill to keep the program funded past Sept. 30 faces concerns from both parties over caps to flood insurance premiums.

Hurricane Harvey’s massive toll on Texas and the related cost for the NFIP gives fodder to both the program’s critics, who want a quicker transition to private flood insurance, and its defenders, who consider the NFIP a critical safeguard for coastal communities.

{mosads}Created in 1968 to compensate for limited private flood insurance options, the NFIP provides policies to residents of flood-prone areas. The federal government mandates flood insurance coverage in many coastal communities, and roughly 5 million homes are insured through NFIP plans.

NFIP stayed largely solvent until Hurricanes Katrina and Rita in 2005, and Superstorm Sandy in 2012 saddled it with more than $24 billion in debt. Hurricane Harvey will add billions more in debt to the program, as more than 50 inches of rain floods Houston and southeast Texas. At least 10 people have been confirmed dead so far, with additional casualties likely in the following days.

R.J. Lehmann, senior fellow at the right-leaning R Street Institute think tank, said the insurance cost of Hurricane Harvey could exceed Hurricane Katrina, which took a $15 billion bite into the NFIP.

Deadly flooding from storms in late December 2015 spurred the House Financial Services Committee to start huddling on flood insurance reform when it returned to Washington the following month. Amid bitter fights over the Dodd-Frank financial reform law, the panel made progress on bills intended to modernize and streamline what they considered outdated and ineffective flood mapping and policy-writing rules. 

The committee passed in a bill in March 2016 to make sure private flood insurance policies satisfy the federal mandate requiring coverage for high-risk homes and properties. The Financial Services panel cleared that bill again in June, along with several others intended to reduce the NFIP’s financial burdens and assist homeowners struggling to get claims approved by the agency.

But the major disputes center on how to keep the program funded while making sweeping changes to how the NFIP stays afloat, all while negotiating over how quickly to transition public policies to the private market.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) is critical of the program but said he’s committed to reauthorizing the NFIP with changes to prevent the program from going under.

“People should gradually — gradually — be expected to pay actuarial rates,” Hensarling said in June. “They need predictability. We need to protect them from sticker shock, but the program must be made sustainable.”

Like Hensarling, most Republicans are eager to move NFIP policyholders toward private insurance. The committee passed a bill along party lines, offered by Rep. Blaine Luetkemeyer (R-Mo.), that mandates the NFIP send a percentage of its riskiest policies over to private insurers each year, waives the insurance coverage mandate for commercial buildings and allows state and local governments to submit their own flood maps to the NFIP to replace federal ones. 

But Democrats and some coastal Republicans are concerned about efforts to raise the cap on NFIP premiums to $10,000, which they consider unacceptably high. Several Louisiana and Texas Republicans are opposed to the premium hike and have held up the reauthorization consideration on the House floor.

Hensarling spokesman Jeff Emerson said the chairman is working with House leaders to schedule a vote on the bill. AshLee Strong, spokeswoman for Speaker Paul Ryan (R-Wis.), said that “details are still being worked through, but the flood insurance program will be reauthorized.”

Senators have also taken action to address the NFIP deadline. Senate Banking Committee Chairman Mike Crapo (R-Idaho) and Sen. Sherrod Brown (D-Ohio) released a template for flood insurance reform and NFIP reauthorization over the summer, but it was quickly challenged by a bill from Sens. Bob Menendez (D-N.J.) and John Kennedy (R-La.).

Lehmann said he expects lawmakers to pass a short-term NFIP renewal if they can’t reach a deal by the end of September but said a lapse in funding could prevent people from rebuilding homes in flood zones, since federal law blocks closing a sale on a home without a flood insurance policy.

An unfunded NFIP could prevent thousands of Harvey victims from resettling in their hometowns, complicating payouts to policyholders.

“That’s obviously a problem for real estate markets,” Lehmann said.