Groundhog Day: Flood Insurance Program Remains Beleaguered

Credit union trade groups continue to push for affordable long-term solution amid uncertainty.

Some things in our nation’s capital never seem to change.

Congress is in turmoil.

The Washington football team is a mess.

And the National Flood Insurance Program is broke—and broken.

Before leaving for the year in December, Congress passed another extension of the NFIP until the end of FY23. The original authorization for the program expired in 2017, and since then it has been funded through a total of 22 short-term reauthorizations.

Congress has been unable to enact legislation that would extend the program for longer stretches.

At the same time, FEMA—which oversees the program—has introduced a new pricing system known as Risk Rating 2.0. The Congressional Research Service (CRS) estimates in a new report that, nationally, 77% of all NFIP policyholders will see an increase in their premiums in the first year.

Concerns Over New Pricing System

Members of Congress have said they do not understand the new pricing system.

“There is no transparency with Risk Rating 2.0.,” Sen. John Kennedy, D-La., said last month. “People have absolutely no idea—members of the United States Congress have no idea—how this algorithm works and how they come up with a specific price for every home in America. But I’ll tell you what we do know: All the prices have gone up.”

Credit Union Response

Credit union trade groups and lawmakers have been pushing for a long-term reauthorization of the program for the past several years.

“It is vital that flood insurance premiums remain affordable so that families in parts of the country where flood insurance is required are not shut out of the opportunity to own a home,” CUNA President/CEO Jim Nussle wrote in a May letter to lawmakers.

Reports Highlight Issues with Program

Gridlock and competing interests have, however, made an overhaul of the program impossible, as outlined in two reports issued last week by the CRS.

The service cites a Government Accountability Office evaluation that found FEMA has two competing goals: keeping flood insurance affordable and keeping it solvent.

“Competing aspects of the NFIP, particularly the desire to keep flood insurance affordable while making the program fiscally solvent, have made it challenging to reform the program,” the CRS stated. “Different Administrations and Congresses have placed varied emphases and priorities on affordability or solvency for premium setting.”

The reports also said that as full risk-based premiums are phased in, policyholders could be faced with large price increases because they have either purchased coverage at subsidized rates and/or the new rating system indicates that they now have a higher risk of flooding.

It was additionally pointed out that, for several years, members of Congress have pushed for a means tested NFIP. “However, FEMA does not currently have the authority to implement an affordability program, nor does the NFIP’s current rate structure provide the funding required to support one,” the CRS concluded.

What Happens Next?

If a so-called affordability model were adopted, the program would have to raise flood insurance rates for many policyholders or divert resources from other purposes. On the other hand, Congress could fund the program through annual appropriations.

Congress also could prop up the program by reducing the NFIP’s debt to the U.S. Treasury. Congress has authorized FEMA to borrow no more than $30.425 billion from the Treasury; the program has $9.9 billion of remaining borrowing authority.

The Biden Administration’s “Build Back Better” plan, passed by the House in 2021, would have cancelled the full debt owed to the Treasury. However, that plan was not enacted.