While Louisiana has just lived through Tropical Storm Cindy and the anniversary of last August's devastating floods is fast approaching, Congress is wrestling with proposals for revising the flood insurance program that have cost-saving measures clashing with fears of skyrocketing premiums.
It all depends on the version Congress passes.
Louisiana Sens. Bill Cassidy and John Kennedy, both Republicans, are hoping the reauthorization language for the flood program more closely resembles separate bills they are offering. All of the proposals — including the seven-bill package House Republicans pushed through the Financial Services Committee last week — contain a number of similar provisions.
For example, each tries to limit premium increases and encourage private flood insurance.
Most of the proposals have some bipartisan support. One of Cassidy's co-authors is a Democrat, New York Sen. Kristen Gillibrand. Kennedy is one of three Republicans and four Democrats co-sponsoring a bill authored by Sen. Robert Menendez, D-New Jersey.
Cassidy said all the other proposals borrow heavily from his bill, which has won support from the Louisiana Bankers Association, the Association of State Flood Plain Managers, the Associated Builders and Contractors of Louisiana, the Louisiana Home Builders Association, the Louisiana Municipal Association, GNO Inc. and the Police Jury Association of Louisiana.
"So, in one sense, I know our ideas will be out there no matter what the final bill is called because our ideas are populating everything," Cassidy said.
The outcome is important to Louisiana, which has an outsized reliance on the National Flood Insurance Program. Over the past 40 years, Louisiana has accounted for about 10 percent of the program's flood policies but filed about 20 percent of the claims and received 34 percent of the total payouts by the flood program.
Cassidy's optimistic a lot of his bill's ideas will find their way to the final version of the legislation and is encouraged by the response of Senate Banking Committee Chairman Mike Crapo, who is expected to offer his own bill.
Crapo recognized that Cassidy's bill addresses the key issues of affordability, sustainability and the cost to federal taxpayers, while including "innovative stuff," Cassidy said. For example, the bill calls for a pilot program in which claim amounts are set in advance and based on the depth of water damage.
These policies could offer property owners the same amount of coverage as a standard policy for about 30 percent less by eliminating the cost of claims adjustment, administrative overhead and potential lawsuits, Cassidy said.
GNO Inc., a member of the Coalition for Sustainable Flood Insurance, worked closely with Cassidy on the bill. The coalition, which has 250 member organizations, was formed five years ago during the 2012 Congressional revamp of the flood insurance program.
"Between the better education about the program and the broader impact of flooding events, particularly (the Northeast's Hurricane) Sandy, over recent years, it seems most likely that at a minimum we're going to get some type of reauthorization of the program that is at least functional," GNO President and CEO Michael Hecht said.
Still, challenges remain, said Caitlin Berni, GNO Inc.'s vice president.
For example, Berni said House Financial Services Committee Chairman Jeb Hensarling, R-Texas, who oversaw the recent House bills, fundamentally opposes the program.
He has said the flood program is unsustainable and criticized the program for its average annual deficit of $1.4 billion. He has said 96 percent of the nation's population is subsidizing the program's 5.1 million policyholders — close to a tenth of whom are in Louisiana.
"My concern is that the reforms the House is putting forward would ultimately destabilize the program," Berni said.
The House legislation would eliminate the practice known as "grandfathering" after 2021 and block coverage for new construction in Special Flood Hazard Areas, the higher-risk zones where flood insurance is required by mortgage companies.
Grandfathering allows some homeowners who've carried flood policies before changes were made to flood maps to pay lower rates than those normally charged in high-risk zones.
Those policies and boosting the minimum rate increase from 5 percent to 8 percent a year could result in the same consequences that followed 2012's Biggert-Waters Act, Berni said. That law required homeowners to pay rates based on actuarial risk, the assumptions insurance companies use to calculate rates, such as frequency and severity of losses.
Threatened with enormous rate increases, many people in Louisiana and elsewhere stopped buying flood insurance. Real estate markets stalled. Complaints poured in from homeowners, homebuilders, and the banking and real estate industries. Louisiana Insurance Commissioner Jim Donelon joined Mississippi's federal lawsuit attempting to overturn the new rates, which would have rendered tens of thousands of Louisiana properties worthless overnight.
In 2014, Congress voted overwhelmingly — 306-91 in the House, 72-22 in the Senate — to roll back much of the rate hikes through the Homeowner Flood Insurance Affordability Act.
That kind of support is the reason Berni and Donelon expect the flood program will be reauthorized. The program expires Sept. 30. Donelon said the final version will draw from all of the proposals.
"I think it will be a combination and a compromise, with the hurdle being overcoming the fiscal hawks of Congress, who want to put the program on an actuarial glide path to paying for itself," Donelon said.
The final version of the bill is likely to include provisions to improve mapping, by both the flood program and communities; mitigation and claims handling; and also increase private flood coverage by making it clear that mortgage companies can accept private flood insurance on homes in high-risk flood zones.
Roughly 400,000 of Louisiana’s flood insurance policyholders could see cheaper prices and b…
Donelon said making the program pay for itself would be a huge challenge. The program has been so underfunded for so long that property owners in at-risk locations would see huge increases in rates if the program were forced to pay for itself, he said.
Kennedy said he understands the argument that the market should set the price. But flood insurance is not a market; it's a necessity. He said there's only one source of coverage: the National Flood Insurance Program. The only way to shore up the program is to get more people to buy flood insurance, he said.
Biggert-Waters proved in 2012 that if the premiums are too high, people won't buy flood insurance, Kennedy said. And if they don't, the program will never get on its feet.
"You're not going to get them in here if you can raise the rates 18 percent a year, 25 percent if you're commercial status," he said.
GNO Inc.'s Hecht said getting more people into the program makes it more sustainable and spreads the risk, citing how nearly all of Denham Springs flooded in August but maybe 20 percent of the people had flood insurance.
Kennedy said other senators have told him there's an easy solution to the flooding problem: move.
That view is unrealistic, he said. So is the idea that the National Flood Insurance Program can pay off its $24.6 billion debt without major fixes, some of which will require additional spending.
Kennedy's bill calls for $1 billion for flood mitigation assistance, prioritizing properties that have flooded more than once. The bill also would suspend for six years the $400 million in interest the national program pays each year to the U.S. Treasury. Instead, the money would be used to provide zero- or low-interest loans to fund mitigation projects by homeowners, like elevating homes and flood-proofing. The money also would provide financial assistance to offset premiums or mitigation loan payments that cause housing costs to exceed 30 percent of a homeowner's income.
Cassidy also has proposed $400 million in mitigation funding but from a different source: the National Flood Insurance Program's annual surcharges on primary residences, $25, and secondary homes and businesses, $250.
Paying for flood protection rather than the cost of rebuilding after a disaster is far less expensive. The Federal Emergency Management Agency says each dollar spent on mitigation generates at least $4 in future savings, with some projects enjoying a 54:1 return on investment.
Berni said the important thing is that neither bill requires a tax increase or cuts to other programs to fund mitigation.
"In my opinion, I don't think that's a very hard lift or sell to get that money," she said.
Here are some of the other proposals:
• Kennedy's bill would authorize $3 billion over six years to help retrofit buildings and businesses to prevent future flood damage and $4.8 billion to fund digital imaging and flood mapping for the entire country.
• Cassidy's bill would authorize $500 million a year for mapping. Congress would decide how much is actually appropriated. Berni said Congress appropriated $177 million for mapping in the most recent budget.
• Both Cassidy and Kennedy have called for updating the amount policyholders typically use to elevate a home from an inadequate $30,000. Cassidy would up that to $75,000; Kennedy to $100,000.
• Cassidy said his bill includes a number of protections for middle-class homeowners. The bill would keep the current National Flood Insurance Program rate structure. But it would provide vouchers to some homeowners when their flood insurance premiums boost their total housing costs — mortgage, property taxes and homeowner's insurance — to more than 40 percent of their income.
"You can easily imagine somebody buying a modest house on the Northshore, in Mandeville, and as the city grows, the property values rise," he said. "Maybe there's increased flooding … so his flood insurance premiums rise, and pretty soon he can't afford flood insurance."
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• Kennedy also wants to cut the amount private insurance companies are paid to write and service National Flood Insurance Program policies. The companies now get 31.9 percent of premiums without taking on any of the risk. Kennedy wants to reduce that to 22.5 percent while keeping agent commissions at 15 percent of written premium.
The insurance industry pushed back on the House bills, which included a reduction to 25 percent. The Financial Services Committee changed that to 27.9 percent.