WASHINGTON (Aug. 28, 2017) – As Hurricane Harvey, the most powerful tropical storm to make landfall in the continental United States in a dozen years, continues to lash Texas residents with torrential rains and historic flooding, the R Street Institute extends its deepest sympathies to those caught in the storm’s path.
While political matters always must remain secondary to immediate threats to life and limb, the institute also notes that members of Congress returning from their August recess will need to act promptly to address at least two pressing legislative issues left in the storm’s wake: reauthorization of the National Flood Insurance Program, which expires Sept. 30, and the likely need to raise the NFIP’s borrowing authority, which currently stands at $30.4 billion. Due largely to claims accumulated during 2005’s Hurricane Katrina and 2012’s Superstorm Sandy, the NFIP’s debt to federal taxpayers currently stands at $24.6 billion.
“Were Harvey’s flood insurance claims to equal or exceed the $8.6 billion in claims incurred from Sandy, which appears likely, it would pierce the NFIP’s borrowing cap and require congressional action to ensure policyholders are paid promptly and in full,” said R Street Senior Fellow R.J. Lehmann. “The NFIP is contractually obligated to pay its claims. Therefore, failing to raise the borrowing authority is not an option. However, the fact that the program’s debt appears likely to exceed $30 billion underscores that the program is unsustainable as currently structured and that it is essential to make significant reforms to its operation.”
Some of the impact to taxpayers, thankfully, will be offset by a reinsurance agreement the NFIP entered in January, under terms made clear by the Biggert-Waters Flood Insurance Reform Act of 2012. A group of 25 international reinsurance companies have agreed to pay out a total of $1.042 billion for any flood event incurred in 2017 that exceeds $4 billion, indemnifying the NFIP for 26 percent of losses between $4 billion and $8 billion. Legislation passed in June  by the House Financial Service Committee would make it mandatory for the NFIP to continue to explore such arrangements in the future.
“It appears this year’s reinsurance agreement will serve the function for which it was intended, to shift the risk of catastrophic flooding off the backs of taxpayers and onto the private market. In fact, this package was oversubscribed and could have been even larger,” Lehmann said.
Given private sector interest in taking on more flood risk, Lehmann noted it is essential that any long-term reauthorization of the NFIP must encourage development of the growing private market in flood insurance. Toward this end, Congress should clarify the definition of continuous flood coverage and the process for certifying that private coverage meets federal lending requirements; the Federal Emergency Management Agency should make available to private insurers and reinsurers property-level claims and underwriting data; and the prohibition on insurers who participate in the NFIP’s Write Your Own program from selling private flood insurance should be lifted.
“A recent survey  by the actuarial firm Milliman shows the overwhelming majority of NFIP policyholders in Texas, Florida and Louisiana, even in the highest-risk zones, could obtain more affordable coverage through the private market,” Lehmann said. “Private coverage increasingly is emerging as a viable option, and we just need the federal government to get out of the way.”
Finally, Lehmann added that, should Congress take up an emergency supplemental in the wake of the storm, it would be wise to include language overturning President Donald Trump’s recent executive order to repeal the Federal Flood Risk Management Standard.
“The FFRMS served to protect both taxpayers and the environment by ensuring that flood risks are taken into account when building federal infrastructure and other federally funded projects in recognized flood zones. Hurricane Harvey is another reminder of why that process is essential,” Lehmann said.
In addition, R Street experts—including Lehmann, Senior Fellow Ian Adams, Southwest Region Director Josiah Neeley and President Eli Lehrer—are available to discuss the storm and various relevant public policy issues. Please contact Communications Manager Dave Bahr to schedule an interview.
R Street is a nonprofit, nonpartisan public policy research organization whose mission is to promote free markets and limited, effective government. It has headquarters in Washington, D.C. and five regional offices across the country. Its website is www.rstreet.org .
Image by Sasa Kadrijevic 
- “passed in June”: https://buckleysandler.com/blog/2017-06-21/house-financial-services-committee-advances-two-flood-insurance-measures-delays-action-other-bills
- “A recent survey”: /www.milliman.com/uploadedFiles/insight/2017/private-flood-insurance-cheaper-nfip.pdf
- “www.rstreet.org”: http://rstreet.pr-optout.com/Tracking.aspx?Data=HHL%3d8152A%26JDG%3c%3b28.6%2f%3d%26SDG%3c90%3a.&RE=MC&RI=4593608&Preview=False&DistributionActionID=3986&Action=Follow+Link
- “Sasa Kadrijevic”: https://www.shutterstock.com/g/Sasa+Kadrijevic