Land Use

Soaring flood insurance rates threaten to wash away property values, tax base

Eight years ago today: The levee failures following Katrina inundated more than half the city.

National Oceanic and Atmospheric Administration

Eight years ago today: The levee failures following Katrina inundated more than half the city.

In recent months, it has become clear that Congressional action is needed to address unintended, drastic increases to National Flood Insurance Program (NFIP) rates for home and business owners along our coasts and rivers.

A confluence of the Biggert-Waters Act of 2012 (which was meant to stabilize NFIP), incomplete and inaccurate FEMA maps, and questionable actuarial calculations have led to premium increases of up to 5,000 percent and more – even for policyholders who have built to code and never flooded.

Unless addressed, changes to NFIP will do grievous harm to the very people the program was designed to protect. One homeowner who built to code and never flooded faces an increase in his annual premium from $633 to a completely unviable $28,554.

Louisiana, New Jersey and New York happen to be at the forefront of this issue because our communities have been among the first to receive new FEMA flood maps, a trigger for some of the premium increases. Other states will soon face the same problem, however. The whole nation participates in NFIP, and, according to National Oceanic and Atmospheric Administration, 55 percent of Americans live within 50 miles of the coast.

It’s particularly galling to see massive financial penalties imposed on the owners of properties that are built to code and have never flooded. These are people who have played by the rules — only to see Congress and FEMA suddenly change them in the middle of the game.  A completely unanticipated 5,000 percent rate hike in the middle of a mortgage utterly contradicts typical insurance practices and reasonable expectations.  It amounts in effect to an illegal taking of property; the lack of due process is deeply concerning.

NFIP Graph

GNO, Inc.

Some say that these changes are necessary to get rid of “subsidized” rates.  But the vast majority of policyholders – 81 percent — are not subsidized.  Rather, they are already “actuarially rated,” meaning that FEMA has deemed the rates to reflect true risk. (This includes “grandfathered” properties.)

Further muddying the issue is the overarching question of whether the NFIP is being managed properly.  If one calculates the amount of premiums paid in versus the amount of claims paid out, the program should be $6 billion in the black.  While this figure does not factor in administrative overhead, the program’s current deficit — $25 billion — is difficult to explain.

Other mysteries: How many policy-holders are going to get slapped with drastic premium increases of more than 500 percent. And why is it that 40 percent of federally backed mortgages do not carry flood insurance, as required.  If the requirement were enforced, would the program be solvent? GNO, Inc. is producing a report that seeks to get to the bottom of these issues.

If unchecked, the consequences of the current polices are clear and devastating.  Owners will lose everything, values will plummet — if properties can be sold at all; bank mortgages will go into default, local tax bases will erode, and regional economies will be eviscerated.  Ironically, this will ultimately destroy NFIP itself, as policyholders abandon an unaffordable program in droves.

A coalition of business and elected leaders from states across coastal and riverine America is forming to address these issues.  The new Coalition for Sustainable Flood Insurance, which now includes over 20 states, supports a stable, fiscally responsible National Flood Insurance Program that protects the businesses and homeowners who played by the rules and built according to code.

The good news is that since the Coalition brought the issue to the attention of Congress some 10 weeks ago, the response has been swift.  In early June, the House passed a bipartisan, one-year delay of premium hikes as part of its Department of Homeland Security Appropriations legislation.

In another show of bipartisan support, the Senate Appropriations Committee has built the same one-year delay into the Homeland Security Appropriations bill now awaiting consideration by the full Senate.  One of the principal authors of the Biggert-Waters Act, U.S. Rep. Maxine Waters, D-Calif., has said publicly that imposing exorbitant rate increases on homeowners was never the intent of Congress.

With a strong, bipartisan focus on this issue in both the House and Senate, we are in a position to fix a problem that must be resolved not only for Louisiana, but the nation:  ensuring a sustainable, actuarially responsible NFIP that protects economies, properties and lives.

Michael Hecht is the president and chief executive officer of  Greater New Orleans, Inc., a nonprofit that nurtures business development in the area.

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  • KC King

    Ther’s an entirely different scenario there I demolished an rebuilt a house that was elevated two feet above the Katrina high-water mark. My current flood insurance is a fraction of what it was before Katrina with higher coverage.

    Because of the chaos of post-Katrina my house wound up costing more than twice what a contractor bid. That contractor left the state with $45k of my money and I tried to play junior general contracto to finish it. Always a bad idea.

    There are a couple of fallacies in your arguments. If the rules we played by were made by Professional Engineers according the ethical oaths (hold safety paramount). Instead the rules were made by or under the direction of politicians. These politicians were driven by term limits and special interests at all levels. The were also driven and committed to growth. Not safe growth, but short term economic growth.

    The key engineering decisions were driven not by professional ethics but were compromised by Congressional priorities. Do you want Congress involved in how to make your house

  • ERS

    I normally respect articles I read at this site. This is the first one that I’m deeply disappointed in.

  • Dogmom13

    I’d be interested in seeing a similar piece on the effect of homeowners insurance. Five years ago, everyone was saying that the further we got from Katrina, the further toward normal the jacked-up insurance rates would go. Instead, rates have continued to rise. I know at least 3 families who are selling because of the homeowners insurance, not the mortgage note (one was rejected for a refinance because the insurance would be too large a portion of the total payment). And none of these houses saw flooding during Katrina.

  • Deb Wanek

    We have a 3 foot section on a pole building/shed with no cement and gravel floor that is included on our mortgage. The building is valued at $30,000 (high). We were just told this would increase our insurance from $1500 a year on a $285,000 home on 1 1/2 acre lot in the middle of a corn field in Iowa to $3500 a year, more than $2000 increase. When we tried to just get insurance on the building separately we were told that $30,000 building with a $50,000 deductible would cost us $1,100 a year. That’s right, $50,000 deductible, which means they would never pay a dime on a claim. We have been through the floods in !993 and 2008 in Iowa. Never had water on our property even when the creek flooded in 2008. This is the craziness that is our federal government. And we have to pay to have the property surveyed to prove that their maps they are using are incorrect. This is happening all across America. If this doesn’t wake up America, nothing will.