PHOTO: New Orleans, LA, March 8, 2006 – The level of flooding from Hurricane Katrina is evident by the yellow water line across the awning and pillars of this house in Gentilly. The homeowner had coverage from the National Flood Insurance Program (NFIP) and was eligible for the Increased Cost of Compliance (ICC) benefit since he lived in a high risk area and was elevating his home above the base flood elevation in compliance with the community's floodplain ordinance. Robert Kaufmann/FEMA
Property owners who need flood insurance have just been handed a one-year reprieve that comes with good news and bad news. The good news is that the National Flood Insurance Program (NFIP) will remain unchanged for one more year, giving those who need this insurance protection a chance to enjoy a little more time with relatively affordable premiums. This is not to say that flood insurance is currently inexpensive; it most certainly is not cheap! But for many, the new rates that will kick in a year from now will make the current premiums seem very economical by comparison.
The projected changes to the NFIP have been years in the making. The program is seriously in debt to the Treasury due to years of massive storms that have ‘broken the bank'. Perhaps the best known disaster, the one that started the slide into insolvency, was Hurricane Katrina in 2005. The insurance payouts from that storm left huge deficits in the NFIP that have never been recouped. Following closely on Katrina were many other outsized storms that hit the insurance program harder and harder, like waves battering the shore during a hurricane.
What's left of the NFIP is a ragged remnant that can not withstand much more- and this at a time when it is a certainty that much more is coming. As climate change and sea level rise produce more and stronger hurricanes, storm surges, and tidal flooding, the NFIP is not only broke, but deeply in debt. There is no disagreement about the currently dire state of the NFIP, but there is also no discussion of scrapping the program entirely. This is because the elimination of the NFIP would produce a huge and very negative impact on the nation's economy. Nevertheless, it is generally understood that the program stands in need of a major overhaul if it is to remain viable.
The NFIP is managed by the Federal Emergency Management Agency (FEMA), and is an important safeguard for millions of people in flood-prone areas. Created by Congress in the year 1968, the NFIP was intended to offer financial protection for property owners, many of whom cannot access flood insurance from private insurers. Now that the program is teetering on the brink of complete collapse, FEMA has been working on plans to reform the program in order to improve its sustainability. These plans have been controversial, to say the least.
In the past, premiums and flood risk ratings have been based on data from the 1970's, which means that this outdated risk assessment has not kept up with significant changes to climate, flood zones, and other risk factors. Now FEMA is attempting to draw up new and updated criteria for determining flood risk, one that is based on years of experience, and is meant to be much more accurate for today's conditions. The new data-driven plan is called Risk Rating 2.0, and it is the implementation of this plan that has now been pushed back by one year.
The main problem with immediate implementation of the new plan appears to be that this happens to be an election year. While some property owners will find that their premiums will remain stable or even decrease, many, many more people will find that their rates will increase. In fact, the new risk assessments will mean financial strain for the vast majority of policy holders, and financial disaster for more than a few. When the new Risk Rating 2.0 plan was unveiled, there was widespread shock and dismay as the financial implications for policy holders became clear. It seems that FEMA had been working on Risk Rating 2.0 without releasing any information about what it might contain, and now that policy holders have had a chance to learn about what is in store they have reacted with outrage and dismay. Calls to congressional representatives in coastal districts have been flooding in, and worried pols have opted to kick the can down the road until after the elections. For now, the NFIP will continue as usual with the old premium rates, but for next year … there are ominous dark clouds gathering on the horizon.