Flood insurance fix may end up being no fix at all

Andy Cross | The Denver Post | Getty Images A home surrounded by flood water on a farm in Weld County Colorado, September 14, 2103.

Andy Cross | The Denver Post | Getty Images
A home surrounded by flood water on a farm in Weld County Colorado, September 14, 2103.

The bill President Barack Obama signed last month to stop the rise of flood insurance premiums is certainly getting high marks from homeowners.

“We needed this for sure,” said Marc Roy, whose home in New Orleans remains damaged from 2011’s Hurricane Irene. He said his his premiums leaped 50 percent but he’s hoping they will come down under the new law.

Roy, a professor at the Disaster Resilience Leadership Academy at Tulane University, said the situation with rising premiums was getting out of hand. “This gives us a much needed break,” he said.

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But the rate repeal allowed by the Homeowner Flood Insurance Affordability Act comes at a high cost to everyone, said Rachel Cleetus, an economist with the climate and energy program at the Union of Concerned Scientists.

“I think it was unfortunate,” she said. “It allows for some short-term relief on premiums, but it doesn’t address the bigger issues of helping communities deal financially with rising sea levels and floods that keep happening.”

Outcry by homeowners

The rate increases, which started last fall, were a result of the Biggert-Waters Act of 2012.

Passed by a large majority in Congress and signed into law by Obama, Biggert-Waters was designed to stop the National Flood Insurance Program from going deeper into debt by cutting federal insurance subsidies to property in flood-prone areas. It would also raise premiums over time by redrawing maps to reflect increased flood risk.

The program, which provides funding for flood insurance to the private sector, is said to be in the red by close to $24 billion after losses incurred from a series of disasters including hurricanes Sandy and Katrina.

Advocates of Biggert-Waters also said it would help reduce the government’s role in subsidizing property owners who continued to build or rebuild in flood-prone areas.

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However, an outcry by homeowners who faced the higher premiums forced many elected officials in the states most affected by flooding—like Louisiana, Florida and New Jersey—to push for a rollback on Biggert-Waters.

Even one of the bill’s co-sponsors, Rep. Maxine Waters, D-Calif., eventually called for its delay. (Judy Biggert, R-Ill., is no longer in Congress.)

According to the flood program’s numbers, the percentage of homeowners facing higher rates was small, with some 81 percent of policies not affected. But some homeowners could have seen rates go up by as much as 25 percent.

The rate hikes were having an effect on home sales, according to theNational Association of Realtors, which claimed that more than 40,000 home sales since October have been delayed or canceled because of confusion and “unaffordability of new flood insurance rates.”

‘Missed opportunity’

The rollback bill is still a work in progress. Property owners will have to pay higher premiums until the Federal Emergency Management Agency, which oversees the national flood insurance program, works up the lower rates. That could take a year, according to the new law.

Also, businesses and owner-occupied second homes are excluded from the premium cutbacks.

And a key provision that would allow people who buy homes to assume the flood insurance premiums of the previous owner—instead of facing forced premium increases with the sale—is not yet in place.

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In the meantime, the argument continues over what to do about flood insurance and whether it’s a good idea to help those who continue to reside in flood areas.

“People will live where they want to, regardless of the flood zones,” said Roy. “Honestly, the government should get all in or out of the flood insurance business.”

For Cleetus, the rollback is a missed opportunity.

“There’s no easy way, but we’ve got to start doing something different,” she said. “People have to assume some risk for where they live, especially as we’re going to have more episodes of severe weather.”

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