R Street deeply disappointed by House flood insurance bill

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WASHINGTON (Mar. 4, 2014) – The R Street Institute is deeply disappointed by today’s passage of HR 3370 in the House of Representatives. The bill represents a significant step backward from the much-heralded Biggert-Waters Flood Insurance Reform Act of 2012, which was meant to move the National Flood Insurance Program toward financial solvency.

HR 3370 undermines the current law’s goal of ending taxpayer subsidies for the roughly one-fifth of NFIP policyholders who receive them. It would extend into perpetuity subsidies for roughly 700,000 older primary homes, even if they are resold by the current owner. The measure also rolls back rate increases for properties that have been resold since the law was passed in mid-2012.

The bill as passed also repeals entirely the section of the flood insurance reform law that calls on FEMA to update its maps. For most NFIP policyholders, this bill, along with legislation already passed by the Senate, will result in higher rates than they would otherwise pay, as increases for remapped properties that were paying insufficient rates would be offset by reductions for other properties in the program.

Complying with these changes will keep FEMA from ever being able to charge actuarially sound rates for flood insurance, which in turn will keep the NFIP in significant debt to the taxpayers as more bailouts are needed to deal with destruction from major storms similar to Hurricane Katrina and Superstorm Sandy.

“This bill as passed does severe damage to the goal of making the NFIP financially solvent,” said R Street Senior Fellow R.J. Lehmann. “With the program in debt to the taxpayers to the tune of $25 billion, this bill makes clear that members are unwilling to stand behind the free-market principles and fiscal responsibility that the House leadership claims to embrace.”

Lehmann added that the outcry to undo Biggert-Waters has been driven by wildly inaccurate or exaggerated claims about the impact of rate increases. For instance, the phase-out of subsidies for older properties – which see premium increases of 25 percent a year until they reach risk-based rates – currently only affects second homes, business properties and about 9,000 properties that have been completely destroyed more than once. It does not affect primary homes unless the owner resells the property or allows his or her policy to lapse.

Moreover, according to FEMA data, as of July 31, 2013, 97.9 percent of the 5.6 million policies within the NFIP paid rates that were less than $5,000. Only seven properties in the entire United States had rates that were greater than $20,000.

“In this environment of budget cuts and growing deficits, the Biggert-Waters Act demonstrated a commitment to fiscal responsibility for a program that has been operating in debt since 2005. Gutting those reforms will taje us further into the debt that House members always claim to want to reduce.”

The bill now moves to conference with similar legislation passed by the Senate.

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