Once again, we are approaching the expiration of the nation’s flood insurance program even as we near the apex of the hurricane season. Congress has until Sept. 30 to reauthorize the National Flood Insurance Program (NFIP).

It seems clear most members of Congress now recognize that 40 years of taxpayer subsidized flood insurance rates have resulted in the needless loss of American lives and property as well as $40 billion in taxpayer subsidies. For decades, the NFIP has used taxpayer funded subsidies to unintentionally encourage building homes in dangerous locations.

Congress made a reasonable attempt to address this issue before. In enacting the Biggert-Waters Reform Act of 2012, Congress instructed the NFIP to raise rates to actuarily sound levels over a five-year period. Consequently, at this point in time, rates should have been increased by well over 5 percent per year, but that has not been the case. In fact, based on numbers published by the NFIP, since 2012, the NFIP has actually ignored the intent of Congress and decreased rates by about .01 percent.

The NFIP has undertaken a revamp of its rating methodology known as Risk Rating 2.0, in an effort to address its appallingly inaccurate pricing. If correctly implemented, Risk Rating 2.0 will remedy the inequalities whereby, in many instances, wealthy coastal residents are paying rates that are much too low while millions located in less risky areas pay much more than they should. This absurd dislocation actually creates an incentive to build in highly flood-prone areas which, in turn, creates a greater dislocation leading to even more loss of life and ever-increasing financial losses. 

A Solution in the House

A bill passed by the House Financial Services Committee represents an admirable bipartisan effort and would be a prudent reauthorization of the NFIP. The bill is known as the National Flood Insurance Program Reauthorization Act of 2019, H.R. 3167. If Congress eventually adopts this bill, the nation will be moving toward a long-term solution to the financial and human losses that will surely continue if flood insurance pricing does not reflect the true cost of risk in the future.

The measure, as marked up in committee, would reauthorize the NFIP for five years, and actuate multiple reforms. It would nullify NFIP rules that prevent NFIP policyholders from obtaining a refund when they cancel a policy before its expiration date to obtain better terms or pricing using a private market flood insurance policy. Further, the bill contains language that would quash the NFIP’s “continuous coverage” rule, under which policyholders who leave the NFIP for the private market are penalized for not being “loyal” to the NFIP. Most importantly, it leaves in place the Biggert-Waters mandate for the NFIP to adjust flood insurance rates to actuarially sound levels, thus opening the way for the benefits of Risk Rating 2.0 to be realized— a move that is critical to ending the deadly and perverse outcomes flowing from the current NFIP rating paradigm.

A Lethal Bill in the Senate

A different approach is being floated in the Senate by Sen. Robert Menendez (D-N.J.) and a small number of coastal senators. It would also reauthorize the NFIP but would use unrealistic caps on rate increases to effectively nullify any meaningful benefits from FEMA’s risk rating update. Regrettably, it will guarantee taxpayers will lose additional billions of dollars and that many thousands of homes and lives will be placed in harm’s way.  

These well-intentioned senators must realize that if accurate flood rates are implemented by the NFIP, it will release the curative power of the invisible hand to deliver lower flood insurance rates for 90 percent of the people in their districts and all flood-exposed Americans through competition and increased private market efficiencies of scale.

Moving Forward

Congress has an opportunity to make a rational course correction to the benefit of all, or it can continue being irresponsible at best and complicit at worst in the financial and human losses that those in flood zones will continue to suffer. It is nothing less than a betrayal of the public trust for members of Congress to incentivize placing American lives at risk.

Every member of both houses of Congress should support H.R. 3176. Only competition from the private market will lead to the innovation, consumer choice and cost reductions so desperately needed by the entire nation.

Craig Poulton is chief executive officer of Salt Lake City-based Poulton Associates, LLC, which administers the country’s largest private flood insurance program, the Natural Catastrophe Insurance Program at CATcoverage.com. Follow him on Twitter @nciptweets.