Flood insurance policyholders in Louisiana and nationwide have significantly higher incomes than people who are uninsured — a finding that suggests policymakers ought to pay attention to whether policies are affordable, a new study from the National Flood Insurance Program finds.

The new report lays out frameworks for how flood insurance premiums could be subsidized based on income needs. Many flood policies are discounted now, but those reductions are based on when houses were built and whether the flood maps have changed since then.

“What this study says, for the first time, is let’s not just look at the structure, let's look at the ability to pay to be the driver going forward," said Roy Wright, director of the National Flood Insurance Program, on a call with reporters.

The study was prompted by the 2014 Homeowner Flood Insurance Affordability Act. That law stepped back the immediate — and at times hefty — rate increases on some policyholders called for in the 2012 Biggert-Waters Flood Insurance Reform Act, but asked FEMA officials to re-examine how subsidies are allocated through the program and consider whether they should be targeted at certain homeowners, the report says.

The first-of-its-kind study matches census data with flood insurance information, providing insight into how wealth affects the availability of flood insurance and what can be done to help lower-income people afford policies, which would help them recover faster from a disaster.

The study found that nationwide, people who carry flood insurance are wealthier than those who do not. In the majority of states, although not in Louisiana, lower-income families are, however, more likely to live in a high-risk flood zone.

The study found that for people living inside high-risk flood zones nationwide, 26 percent of policyholders are low-income and 51 percent of non-policyholders are low-income. Low-income is defined as making less than 80 percent of the area median income.

“The report reveals that homeowners with the lowest median income, both those who are current policyholders and those who are prospective policyholders, tend to live in the highest flood hazard areas,” Wright said. “And price can indeed be a barrier to entry.”

The study proposed three different ways Congress could measure the affordability of flood insurance. One way is to look at whether it is affordable for people who fall below a certain income threshold. Another is to limit premiums to a certain percentage of household income. A third is to consider coverage unaffordable when a household’s housing burden, including mortgage, taxes and insurance, rise above a certain level.

Targeted subsidies could take the forms of tax credits or special government-administered policies. The study also raises the prospect of special mitigation grants and loans for certain low-to-moderate-income households.

The flood insurance director said any program should still indicate to homebuyers their real risk rate.

Wright is suggesting — as a first step — that Congress cap rate increases at 2 percent for low-income policyholders. Right now, policyholders are seeing an average of 8 percent annual increases, he said.

Wright said the program could temporarily absorb the cost of a cap like that. For larger changes to the program, he said Congress would need to appropriate additional money.

"Any affordability program that is funded solely by NFIP premiums and fees will erode the financial position of the program," Wright said.

Congress has been mulling possible changes to the NFIP for months, but settled for piecemeal extensions instead. One issue has been whether to reduce some subsidies that benefit households in floodprone areas as a way to make the program more financially stable. 

The study does not consider the effect of changing existing discounts.

By comparing income and flood insurance data, the report showed that Louisiana households that carry flood insurance have incomes about double those of people who do not carry it.

Within the special flood hazard areas in Louisiana, the median income for a policy holder is $73,000, while the median income for a non-policyholder is $33,000. Special flood hazard areas have at least a one percent annual chance of flooding.

Nationally, policyholders have median household incomes of $82,000, while non-policyholders have incomes of $55,000, the study found.

"Although a significant income differential between the policyholders and the non-policyholders would be expected, I have actually found the size of that gap to be startling," Wright said of the national phenomenon.

Louisiana was different from most other states, however, in that residents living inside special flood hazard areas have slightly higher incomes than residents living outside of them.

Louisiana household living inside special flood hazard zones typically make $1,600 annually more than households outside the of them.

Nationally, median household incomes outside special flood hazard areas are $7,000 higher than inside the zones.

Caitlin Berni, senior vice president for Greater New Orleans, Inc., the regional economic development organization for southeast Louisiana, said she has been eagerly awaiting this study since the 2014 bill.

Berni, whose organization lobbies around flood insurance issues, said affordability — and increased participation in the program — are priorities for GNO Inc. in the upcoming reauthorization bill. The program is currently on a months-long extension.

“(The study) highlights that we need to be doing more and thinking more creatively and proactively about how to deliver affordable flood insurance,” she said.

Asked about the political feasibility of such an approach, she said “keeping flood insurance affordable is something Congress has continuously demanded as a priority." But she noted that in structuring such an income-based program, “the devil is in the details.”

Berni is not in favor of trading income-based subsidies, however, for the existing set of discounts that she believes give homebuyers needed certainty. She said that getting more people to sign up would solve a lot of the current fiscal challenges faced by the program and allow for more affordability.

Robert Collins, a professor of urban studies and public policies at Dillard University, who studies disaster recovery, said he thinks it is the right thing for the federal government to subsidize flood insurance rates based on income.

“My position is, it’s better to invest the money upfront and to allow individuals to purchase flood insurance at a reasonable rate, instead of letting the disaster happen and having to come in with these complex interventions afterwards,” he said, citing the examples of programs designed to help flooded homeowners rebuild like Road Home and Restore Louisiana.

He said that in New Orleans lower-income people tend to live at lower elevations and are less likely to be able to afford insurance.

“People basically see flood insurance as a luxury item,” Collins said. “I’m talking about poor and working-class people. It’s not that people don’t want it. But they can’t afford it, because they’re dealing with survival issues.”

James Boyd, a finance professor at the LSU School of Business, called the intent of the affordability effort “noble,” but he said it could end up putting a burden on people who can pay or else put the program deeper in debt. As of April 2018, the program is $20 billion in debt to the U.S. Treasury, according to the report.

“If you’re just talking about something fiscally prudent on its face and that would be sustainable, I don’t think this is prudent,” he said.

In a statement, Democratic U.S. Rep. Cedric Richmond said Congress needs to come up with a way to make flood insurance more affordable. "Access to NFIP policies is becoming a necessity for more and more families," he said. "Flood waters don't discriminate based on income, so we need a program that is affordable for everyone."

U.S. Sen. John Kennedy, R-Louisiana, said the report appears to confirm “what some of us have been saying all along.”

“You can have a stable program, but you haven’t achieved anything if nobody can buy the product. It’s a very significant point. We can stabilize the program quickly – but nobody will be able to buy the product and that’s the challenge,” he said.

U.S. Sen. Bill Cassidy, R-Louisiana, said he worries an income-based program would be complex to administer and might, for that reason, not turn out well. But Cassidy said he wants to think more about whether there are people — such as older couples on fixed incomes, who are living in houses they purchased long ago — who might justify such a program.

Advocate Staff Writer Bryn Stole contributed to this report.

Follow Caroline Grueskin on Twitter, @cgrueskin.