For months, political foes like Marco Rubio and Elizabeth Warren united behind a push to overhaul the nation’s flood insurance program by capping annual premium increases and focusing on preventing damage in future floods.
Hurricane Harvey could change all of that.
Congress has spent most of 2017 negotiating the National Flood Insurance Program, which must be renewed by Sept. 30. If the program lapses, thousands of real estate transactions and construction projects in flood-prone areas could be affected. But Hurricane Harvey’s unprecedented flooding in the Houston area changes the debate about the future of flood insurance.
Massive storms like Hurricane Katrina in 2005 and Hurricane Sandy in 2012 led to thousands of expensive claims — and the program plunged further into debt as the federal government continued to provide subsidized flood insurance rates well below market costs.
Rubio and other coastal-state politicians are pushing to lower flood insurance premium increases to a maximum of 10 percent per year, a move meant to help their coastal constituents. Currently increases are limited to 18 to 25 percent, depending on the property. But experts say meaningful flood insurance reform will involve moving government-subsidized rates set by the Federal Emergency Management Agency to rates that reflect the actual cost of insurance.
That means higher costs for Floridians living in flood-prone areas.
“It offers rates that are really below risk-based rates,” said Laura Lightbody, the project director for flood preparedness with the Pew Charitable Trusts. Lightbody said it will be a “missed opportunity” if Congress simply extends the flood insurance program and keeps rates the same instead of overhauling it.
Lightbody is hopeful that Congress will act because the House and Senate have already been negotiating the program’s renewal for months and the coverage of Hurricane Harvey will draw national attention to the fiscally troubled program.
Daniel Stander, the managing director of Risk Management Solutions, a worldwide catastrophic risk modeling company, said Hurricane Harvey will likely not result in an immediate increase of flood insurance rates but will compound the program’s $23 billion debt situation. However, the hurricane will likely cause FEMA to reassess the program’s cost-effectiveness.
“There is certainly a desire inside FEMA to modernize how the [flood insurance program] is run,” Stander said. Flood insurance rates “are likely to increase but I see that more by movements toward risk-based pricing than by a specific event like Harvey.”
But Florida politicians bristle at the potential for higher rates.
Florida, with more than 1.7 million policies, has 35 percent of the 5 million policies covered by the federal program — three times as many as the second ranked state, Texas, which has 593,000 policies.
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