FEMA report highlights need for flood insurance reform
According to FEMA, a combination of climate change and population growth will significantly impact the number of Americans who will live in flood zones in coming decades. By the end of the century, FEMA projects the proportion of the nation that will be designated as special flood hazard zones will increase by between 40 and 45 percent and the number of policies written by the NFIP could double from the current 5.6 million to 11.2 million.
Incorporating projections that average sea levels will rise by four feet, increasing the threat of tidal surge, and that increased precipitation will similarly impact river flooding, FEMA also projects average flood losses could increase by as much as 90 percent.
Such projections bode ill for a program that is today some $25 billion in debt, which it has no realistic ability to repay, said R Street Senior Fellow R.J. Lehmann. The FEMA report projects that to maintain solvency, average rates paid by NFIP policyholders would have to rise 70 percent from the current $560 to $952 annually by 2100.
While the Biggert-Waters Act of 2012 called for phasing out subsidized and grandfathered rates for certain classes of NFIP policyholders – including second homes, commercial properties and those that have been subject to severe repetitive losses – Lehmann noted there remains a significant portion of properties that are paying rates below what actuaries would recommend.
Moreover, provisions of the bill that call on the NFIP to build a reserve fund for large catastrophes like Hurricane Katrina and Superstorm Sandy and that allow it to purchase private reinsurance and issue catastrophe bonds will remain on hold until the program has paid off its debt to the U.S. Treasury, he added.
“Given the fiscal problems the NFIP already faces, much less the enormous challenges it will be asked to tackle in the future, it would be unconscionable to turn back the clock and delay any further the Biggert-Waters reforms, as some in Congress recently have proposed,” Lehmann said. “As a matter of both fiscal and environmental policy, we simply no longer can afford to subsidize people to live in harm’s way.”