A draft proposal to reform the National Flood Insurance Program (NFIP) is a “good start,” although it is not a “perfect piece of legislation,” experts said in a teleconference March 7.
The bill, calling for a five-year reauthorization of the NFIP, is scheduled to be introduced at a hearing before the House Financial Services Insurance Subcommittee March 9.
Funding for the program, which covers about 5 million property owners from flood risk, is set to expire Sept. 30. Several short-term extensions have been granted in the last two years and the program has lapsed for brief periods as Congress has avoided addressing its role in flood insurance protection.
“This is a program that is sorely in need of reform,” said Steve Ellis, vice president of Taxpayers for Common Sense, during the SmarterSafer.org teleconference. “For too long, taxpayers have subsidized those who live in high-risk areas, and we need to help those people out.”
Negatives in NFIP’s past and present
The NFIP is more than $18 billion in debt, which threatens its viability, according to SmarterSafer.org, a national coalition supporting environmentally responsible, fiscally sound approaches that promote public safety.
The bill to be introduced in the House indirectly would give NFIP a firmer financial fund to pay out the debt more quickly than it is, although it does not do anything that forgives the debt, according to Eli Lehrer, vice president of the Heartland Institute, who also spoke during the SmarterSafer.org teleconference.
Lehrer expressed concern about the addition of new coverage for business interruption and mandatory purchase requirements that are not enforced to the extent they could be.
“This program is already $18.3 billion in debt,” Lehrer said, “and there’s no way of paying it back. Adding more coverage is a problem.”
Positives with reform
The new bill would be more favorable to the insurance industry, eliminating some provisions that were included in last year’s Flood Insurance Reform and Priorities Act of 2010, according to the National Association of Professional Insurance Agents (PIA).
Separating subsidies from the rates rather than incorporating them directly into the rates will allow people to better understand their risk and make better decisions about development; provide incentives for mitigation; and continue flood coverage, SmartSafer.org officials said.
To help fix the NFIP, we can “give the right incentives and disincentives to make [people in high-risk areas] aware of the risk of where they’re living,” Ellis said. “One of the ways we can do that is moving the rates to where they are more actuarially sound. By having flood maps that are accurate, that tell people the actual risk of where they are living, this bill will help move the program in the right direction.”
SmarterSafer.org said subsidies must be explicit and not included in the insurance rate structure. NFIP must encourage mitigation of risk as well as the natural and beneficial use of floodplains, the coalition said.
“Unfortunately, the NFIP is now set up so that taxpayers are literally subsidizing the development in this wildlife habitat,” said Adam Kolton, executive director National Wildlife Federation’s national advocacy center, in the teleconference. “It is critical that the program be reformed to protect the environment. The amount of red ink will only pile up if we don’t get serious.”
House’s planned flood insurance reforms ‘good start,’ but not ‘perfect’ (IFA Web News)
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