Will the NFIP survive this year’s hurricane season?
The National Oceanic and Atmospheric Administration’s Climate Prediction Center recently unveiled its projection of a near-normal or below-normal hurricane season, with a 70 percent likelihood of eight to 13 named storms, three to six hurricanes and one or two major hurricanes.
Those projections more or less jibe with those released in April by forecasters Philip Klotzbach and William Gray of Colorado State University, who note the impact of a cooled Atlantic and at least a moderate-strength El Niño in their projection of nine named storms, three of which would become hurricanes and one of those would become a major hurricane. Klotzbach and Gray assign a 35 percent chance of a major hurricane making landfall somewhere on the U.S. coastline, compared to 52 percent in an average year.
Of course, it takes just one big storm to knock those living near the coast, as 126 million Americans do, for a major loop. It also would take just one big storm to render the National Flood Insurance Program – the federal agency that writes most flood coverage in the United States – unable to pay its claims.
In fact, the program is only able to pay any claims thanks to billions in loans from federal taxpayers. The NFIP currently owes the Treasury $24 billion, a tally mostly rung up during Hurricane Katrina in 2005 and Hurricane Sandy in 2012. The program hasn’t made a payment against its principal since 2010 and it’s been able to keep up with its interest payments only because interest rates have dropped dramatically in recent years. In 2008, the NFIP paid $730 million in interest to service its then-$18 billion of debt, compared to just $72 million in interest payments in 2011.
Current law allows the program to borrow up to $30.4 billion before it would need once again to go back to Congress, hat in hand. But the bottom line is that the premiums paid in — $3.8 billion last year, on $1.3 trillion of insured property – simply aren’t enough to keep up with claims. A major hurricane hitting any of the significantly populated areas along the Gulf and East coasts could easily cause another $10 billion or so in flood insurance claims, enough to bankrupt the program.
Congress had a plan to fix this mess. Years in the making, both houses ultimately passed – by wide margins and with strong bipartisan support – and President Barack Obama signed legislation in 2012 intended to set the NFIP on the path to solvency. The plan involved phasing out subsidies for the roughly 20 percent of policyholders who were getting them – more quickly, for vacation and business properties, less quickly for primary homes. It also involved updating and redrawing the program’s long-outdated maps, to ensure those properties most at risk were charged the rates they should be.
Alas, it didn’t take long for Congress to think better of its momentary rush into sane, responsible policymaking. The first complaints about rising rates from coastal policyholders started pouring in while the ink was still dry on the reform bill. Eventually the deafening chorus of complaint – emanating, as it did, from states like Louisiana, Arkansas, Georgia and North Carolina, which will prove crucial to control of the U.S. Senate this fall – was sufficiently to prompt action. Earlier this year, Congress set up re-breaking the program they had just attempted to fix, passing a law that, as the non-partisan Government Accountability Office put it, “will address affordability concerns, but may also reduce program revenues and weaken the financial soundness of the NFIP program.”
Entering into any storm season, one always hopes for the best and particularly, for no major loss of life or limb. But should the storm surge flood in and the flood program collapse, you’ll know where to point the finger of blame.