Congress Reviews Flood Insurance

Federal program has only $400 million in its coffers to cover $205 billion in policies LURKING LIABILITY

A BILL to reform the National Flood Insurance Program, considered one of the federal government's largest domestic liabilities, could save taxpayers billions of dollars in flood disaster bailout costs if it is passed, supporters of the legislation say. The bill, which the House Banking Committee is expected to vote on after Congress's March 21-April 8 Easter break, would make significant changes in a program that has failed to attain its main objective: halting development in flood-prone areas.

"This is a hugely important bill," says Beth Millemann, director of the Coast Alliance, an environmental group in Washington, D.C.

The United States Congress set up the National Flood Insurance Program (NFIP) in 1968 to provide otherwise unobtainable flood insurance to flood-prone properties, including those affected by erosion and hurricanes.

The NFIP offered homeowners in participating communities low-cost flood insurance if those communities guided new development out of hazard-prone areas. In this way, lives, money, and ecosystems would be saved. But because of poor enforcement and weak regulations, these mandates have not been met. Developers and homeowners have used the inexpensive insurance (averaging about $262 a year) to build even in high-risk areas.

The NFIP, which is run by the Federal Emergency Management Agency, now has policies worth about $205 billion yet only $400 million in its coffers. FEMA estimates one catastrophic storm year - with one class 5 hurricane or two class 4 hurricanes like Hugo, for example, could bring losses to these policies of up to $4 billion, depending on how big an area is affected. Hugo cost the program about $350 million.

The National Oceanic and Atmospheric Administration forecasts that some of the worst storms and hurricanes in some 20 years may occur this decade due to changing global weather patterns. And census reports show that coastal communities, which account for more than 80 percent of NFIP policies, are growing faster than any other US sector.

Because of these statistics, many say the NFIP is a blank check that has been signed by the federal taxpayer.

"Who's going to make up the difference? It's going to be you and me," Ms. Millemann says.

The bill to amend the NFIP would do three important things:

- Establish a mitigation fund.

Communities and individuals in the NFIP who have suffered repeated flood damage would be eligible for grants to elevate, relocate, or flood-proof structures.

- Provide a community rating system.

Communities in the program would be rated according to the steps they take to flood-proof properties. The higher rate a community achieves, the lower rate its insurance will be. FEMA has already started this program; the bill would provide a legislative base for it. "If communities are doing more than expected and reducing the risk, we should reflect this in reduced insurance," says Frank Thomas, assistant administrator of the Federal Insurance Administration (FIA), a branch of FEMA.

- Require coastal erosion setbacks.

All new development in participating communities would have to be set back from the shoreline 30 times the annual rate of erosion. In addition, to be eligible for the mitigation grants, communities designated as having high coastal erosion rates would have to set back all new large buildings 60 times the annual erosion rate.

"Elements of [the program] just haven't been brought up to date, and efforts have not been made to make it operate as it should. I think we've made a pretty good step forward to deter development in these high-hazard areas that end up with repetitive losses," says Rep. Ben Erdreich (D) of Alabama, chairman of the flood insurance subcommittee.

Part of what has concerned flood insurance subcommittee members is how many property owners eligible for the program do not participate. The program works like this: FEMA identifies and maps flood-prone areas along the nation's coasts, rivers, and lakes. A community then decides whether flood insurance is beneficial.

Currently, there are about 11 million structures eligible but only 2 million policy holders. One reason for the large gap is that many lenders fail to advise property owners they are required to buy flood insurance if they have a federally guaranteed mortgage and their property is in a participating community. The bill includes provisions that would tighten up on lenders and increase participation.

Representative Erdreich says the bill has broad support and a strong chance of at least being passed by the House. But it would take about two years to implement if passed, according to Mr. Thomas. "I think it's definitely something that's needed. The question is how to make it work."