Flooded areas of Baton Rouge are shown in 2016. 

Flooded areas of Baton Rouge are shown in 2016.  Petty Officer 1st Class Melissa Leake/Coast Guard

Can Congress Bring the National Flood Insurance Program Above Water?

The debate over too-low premiums and repetitive payouts grinds on, even as the thunderheads roll in and the water levels rise.

Get those sandbags and storm shutters ready. Peak hurricane season is bearing down on the Atlantic coast. From New Orleans to the Jersey Shore, nothing focuses the mind quite like a looming megastorm. And while this time of year is always meteorologically suspenseful, now it’s even more so. That’s because among the many, many things Congress is struggling to cross off its to-do list is the reform and reauthorization of the National Flood Insurance Program.

As problematic government programs go, the NFIP is a doozy. Established in 1968, it handles some 5 million policies nationwide. Unfortunately, these days it collects less in premiums and surcharges than it shells out in claims and other expenses, leaving the Treasury Department—read: taxpayers—to plug the holes. Which means every time some neighborhood in Galveston or Daytona winds up underwater (Texas, Florida, and Louisiana account for more than half of all policies), the rest of the nation effectively bails them out. Not that coastal areas bear all the blame—rivers have a nasty habit of overflowing as well. Last August, an ugly storm parked itself over Baton Rouge for several days, dropping upwards of 20 inches of rain that caused $10 billion in damages. All told, the FEMA-managed NFIP is neck-deep in debt to the tune of $24.6 billion. 

No one seriously expects the program to make good on what it owes. Ever. (For years, California Representative Maxine Waters has been pushing to have the debt forgiven.) The Government Accountability Office has listedNFIP among the programs and agencies on its “High Risk List” since 2006. As the frequency of high-dollar floods grows, so do the losses. Throw in spiraling interest payments—$400 million last year alone—and one can see why the program could use a bit of fixing.

The structural, some even say moral, flaws of NFIP are vast and varied. Roughly one out of five properties pays premiums too low for the risks involved. (That situation is slowly improving thanks to past reforms, though some contend that even “full-risk” rates are insufficient.) “Grandfathered” properties that for whatever reason are reclassified into a higher-risk zone also enjoy artificially low rates, subsidized by other policyholders in the area. Flood-zone maps are outdated and inadequate, leading to shoddy risk assessment. Subsidies are “hidden” within policy premiums, making it hard for consumers to gauge a property’s real risk. The way rates are set—based on average home prices within a zone, not the cost of individual structures—leads to cross-subsidies of rich property owners by poor ones. “Repetitive loss” properties make up around 1 percent of policies but account for 30 percent of payouts. And there are substantial barriers to private insurers entering the market.

On and on the list goes. The end result: An irrational system that encourages people to hunker down in areas where Mother Nature clearly does not want them. It is, critics argue, completely bonkers.

“The most basic purpose of government going back millennia is to protect its citizenry,” said Steve Ellis, vice president of the nonpartisan budget-watchdog group Taxpayers for Common Sense. “But here you have a program that is subsidizing people to live and develop in harm’s way.”

Ellis is not alone in his frustration. His group is part of a nonpartisan coalition called SmarterSafer that has been championing NFIP reform for a decade. Other participants include the National Wildlife Federation, the Sierra Club, the National Housing Conference, Habitat for Humanity, the National Taxpayers Union, and multiple insurance giants.

While the coalition pushes a range of reforms, among its overarching goals is to shift NFIP’s focus away from rate subsidies and toward mitigation efforts. In other words, instead of making it cheaper for people to live in high-risk zones, government should work to lower those risks, either by helping owners seriously flood-proof their homes or by easing them out of an area altogether.

Indeed, among NFIP’s core insanities is that it’s geared to help people rebuild in the same spot where they’ve already been flooded. As the Natural Resources Defense Council noted in a report last August, this is “a perilous strategy in the face of increasingly severe storms and sea-level rise due to climate change.” This holds doubly true of repetitive-loss properties, few of whose owners seem to learn from past disasters. Of 30,000 repetitive-loss properties examined by the NRDC, 75 percent had done nothing to mitigate future risk. The general public favors a new approach as well: An April poll commissioned by the Pew Charitable Trusts found that 75 percent of registered voters support FEMA buyouts of “repeatedly flooded homes in environmentally sensitive areas.”

There are, in short, scads of meaty issues that need tackling. And plenty of congressional lawmakers from both teams are itching to do so, including Jeb Hensarling, chairman of the House Financial Services Committee, which is responsible for reauthorizing NFIP. Hensarling’s committee has been laboring to come up with a comprehensive reform package that touches on many of the aforementioned problems but still has a prayer of passage. Despite the bipartisan nature of NFIP, the regional politics involved make significant change next to impossible.

Unsurprisingly, NFIP policyholders tend to get super grumpy in the face of anything that could raise their rates. And grumpy property owners translate to twitchy legislators. As such, this political battle tends to break down along geographic rather than party lines, with lawmakers from coastal and other NFIP-heavy areas often laser-focused on rate affordability above all.

Case in point: In 2012, Congress passed the Biggert-Waters Insurance Reform Act, which sought to phase out subsidies and make other adjustments to NFIP. (One of the most controversial provisions mandated that when a rate-subsidized property was sold, its premiums would promptly rise to the full-risk level. This went over very poorly with property owners and realtors.) The pace of change proved too aggressive. Rates started rising, people started freaking out, and, less than three years later, Congress passed a bill delaying or reversing many of the changes.

With reauthorization time here again, lawmakers are looking to give it another go—though they’re treading much more carefully. People involved in the effort say the lesson of Biggert-Waters is that lawmakers must move in baby steps to avoid giving policyholders sticker shock. Boost the private market a smidge here. Bump up surcharges a hair there. Work to better track repetitive-loss properties. Encourage mitigation ever so gently.

But even those efforts may prove untenable. The current legislative situation, Hill folks admit, is a mess. “The general agreement is that people don’t like what they have but are unwilling to make changes,” a frustrated Financial Services staffer noted to me.

In June, Hensarling’s committee cleared seven bills that in theory will be packaged into one 21st Century Flood Reform Act for the House to vote on. But already the chipping-away has begun. In late July, two dozen or so Republicans sent a letter to Speaker Paul Ryan saying they could not support the package because of affordability concerns. (Some Democrats have similar reservations.) Homebuilders and realtors associations were also up in arms. Hensarling’s people placated the latter groups by agreeing to dial back proposed fee and rate increases and retain the practice of grandfathering.

Still, grumbling among members continues, and the Senate seems to be coalescing around a far more modest bill. Reform advocates admit they are not optimistic that much will get fixed this time around. And so the dysfunctionality grinds on, even as the thunderheads roll in and the water levels rise.

Just something to think about while watching all those Weather Channel reporters getting whipped around stormy beaches this season.