For residents of flood-prone areas such as Northpark South, only the National Flood Insurance Program (NFIP) stands between a river and ruin.
But ironically, efforts to staunch financial hemhorraging are making NFIP flood insurance unaffordable for many with low incomes. That creates an uncertain future for developments and people in or near floodplains.
Moreover, Congress must reauthorize NFIP before midnight on Feb. 2, 2024, to avoid a lapse in authority to sell flood insurance and borrow funds.
Approximately six million homes sit in special flood hazard areas nationwide. The National Association of Realtors estimates that should a lapse in the NFIP’s authorization occur, it threatens 1,300 property sales each day.
Texas Ranks #2 in States with Most Flood Damage
Hurricane Harvey inundated the area below with approximately eight feet of floodwater. Now, Century Land Holdings of Texas is clearing this risky area bordering the San Jacinto West Fork to build more than 230 homes.
This 50-acre patch of dirt is a symbolic battlefield in a growing debate over NFIP, which Congress must renew or reform next year.
Jobs vs. Jitters
A coalition of developers, home builders, realtors and mortgage lenders sees the NFIP’s nationally subsidized insurance rates as a tool to sustain employment, grow the economy, and enlarge the tax base of communities.
Others believe the subsidies encourage dangerous development in flood-prone areas by giving homebuyers a false sense of security.
Finding the right balance between encouraging responsible development and mitigating flood risks is a complex task for policymakers. Perhaps nowhere do the issues come into sharper focus than in Northpark South. Even the entrance to the subdivision was under eight feet of water. That would make evacuation difficult for anyone caught napping when the waters rise.
Contradictory Lawsuits Against FEMA
Contradictory lawsuits symbolize the two sides in this debate. An article in Government Executive noted that FEMA is being sued for making flood insurance too expensive AND too cheap!
One law suit – that includes the State of Texas as a plaintiff – alleges that high flood insurance rates put residents and communities at risk of economic ruin.
A second lawsuit alleges that low rates do too little to stop developments on at-risk land.
The second lawsuit alleges taxpayer-subsidized, discounted coverage encourages floodplain development in high-hazard areas by providing insurance policies that obscure risk to property owners.
The contradictory allegations in the lawsuits underscore the need for careful policymaking around flood insurance.
Battle over Risk Rating 2.0
What triggered these lawsuits? FEMA has tried to navigate these dangerous waters by introducing a new system called Risk Rating 2.0. Risk Rating 2.0 reflects risk to individual properties from multiple sources of flooding, instead of aggregating people in broad flood zones. It also takes into account factors such as building codes and elevation that can mitigate flood risk.
Risk Rating 2.0 is an attempt to eliminate the subsidy aspect of flood insurance by quoting rates on an actuarial basis. Reportedly, some homeowner’s flood insurance rates have fallen, but others are rising and will continue to rise for years to come as risk becomes fully priced into policies. Texas and other Gulf Coast states are in the highest premium increase group, according to GAO.
Right now, law caps annual rate increases under Risk Rating 2.0. But the Congressional Accounting Office says caps only perpetuate an unfunded premium shortfall. GAO estimated it would take until 2037 for 95 percent of current policies to
reach full-risk premiums, resulting in a $27 billion premium shortfall by then.
GAO also believes that discounted premiums hide fiscal exposure, address affordability poorly and hinder private-market growth.
In the meantime…
Affordability of Insurance Increasingly in Doubt
Rising costs are the number one insurance-related issue in many states, according to Realtor Magazine. Risk Rating 2.0 aligns premiums with risk, but jeopardizes affordability.
Some who buy homes in Northpark South will drop flood insurance because of its cost. GAO says nine percent of NFIP policy holders will see price increases greater than 300%.
Higher premiums give policy holders a greater incentive to mitigate flood risk. But they’re also causing many homeowners to cancel policies.
One Congressional aid I talked to worried that if not enough people buy flood insurance, places like Northpark South will become “instant slums” after the first time they flood.
The reality: those who most need flood insurance can least afford it.
The GAO report comes as close to riveting reading as any government document I have ever read. Among other things, it points out how FEMA’s Community Rating System may send contradictory risk signals to potential buyers.
When Congress takes up NFIP next year, debate could lead to additional reforms. Watch closely. No one can predict the outcome at this point. Lobbyists are choosing up sides … between property rights and protection. Between a river and ruin.
Posted by Bob Rehak on 12/14/23
2298 Days since Hurricane Harvey
The thoughts expressed in this post represent opinions on matters of public concern and safety. They are protected by the First Amendment of the US Constitution and the Anti-SLAPP Statute of the Great State of Texas.