United States Senate
WASHINGTON, DC 20510-1804 .
March 27, 2014
Mr, Jeffrey Jacobs
Water Science and Technology Board
National Research Council
500 Fifth Street NW
Washington, DC 20001
Dear Members of the National Research Council Committee on the Analysis of Costs and Benefits of Reforms to the National Flood Insurance Program—Phase 1:
Thank you and your fellow National Research Council committee members for donating your time and energy to the Analysis of the Costs and Benefits of the National Flood Insurance Program (NFIP) authorized by the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012 (P.L. 112-141). This review shall include an economic analysis that compares and contrasts the merits of charging full risk-based premiums versus the subsidized flood insurance policies that were a centerpiece of the program prior to 2012. The review shall assess the impacts each approach will have on Federal disaster response costs and the budget at large, and I appreciate this opportunity to offer my perspective on this important study.
The Federal Emergency Management Administration (FEMA) estimates that the NFIP saves American taxpayers $1.6 billion annually in avoided disaster response costs. Despite the fact that between 1978 and 2011, the program experienced just nine loss years in which flood loss payments exceeded premiums written, Section 100211 of Biggert-Waters gives FEMA the conflicting mandate of including catastrophic loss years when calculating average historical loss years in accordance generally accepted actuarial principles. I encourage the Committee to consider the viability and actuarial soundness of this methodology in the affordability study.
Section 7 of the Homeowner Flood Insurance Affordability Act (P.L. 113-89) directs the Administrator of FEMA to strive to minimize the number of policies with annual premiums that exceed one percent of the total coverage provided by the policy and report any instances in which premiums exceed that threshold. Section 16 of the same bill amends FEMA’s portion of the affordability study authorized under Biggert-Waters to include additional criteria such as the options for maintaining affordability if annual premiums exceed two percent of the liability coverage provided by the policy. It is clear that Congress has significant concerns about the overall affordability of flood insurance, and I urge this Committee to specifically evaluate the viability of different affordability thresholds as defined by the percentage each premium represents of the total coverage provided by the policy.
During a March 12, 2014 hearing of the U.S. Senate Committee on Appropriations Subcommittee on Homeland Security, Secretary Jeh Johnson acknowledged the importance of affordability and overall participation in the long-term solvency of the National Flood Insurance Program. As my colleague Congressman Steve Scalise (R-LA) said so eloquently on the floor of the House, “Sending somebody a $10,000 or a $20,000-a-year bill on a $200,000 house that never flooded is not an actuarially sound rate. It’s a death sentence.” While we have anecdotal data indicating poor compliance rates around 60% with the NFIP mandatory purchase requirement, it is imperative that this Committee provides reliable data about compliance and market penetration in this study to ensure the risk pool can sustain the program’s liabilities.
Lastly, I represent many coastal communities that are intimately familiar with flood risks and actively invest their own resources in mitigating their exposure to floods. Although FEMA has initiated a pilot program that is designed to give these communities credit for existing flood protection infrastructure, as it stands today, a $450 million, 40 mile levee that has never failed was literally wiped off the map in the new FEMA flood map was released for Lafourche Parish in 2008. This Committee should consider programs and initiatives that incentivize local investments in mitigation and reward communities that take a proactive approach to flood protection.
Over 55% of our nation’s Global Domestic Product is produced by the 15% of U.S. counties that are located directly on open ocean, the Great Lakes or in coastal floodplains. The National Flood Insurance Program was created with the explicit goal of making flood insurance available on reasonable terms and conditions so that people could live where they needed to work to power our nation’s economy. While I am proud of the progress we have made with the Homeowner Flood Insurance Affordability Act (P.L. 113-89), nothing is perfect. Nothing is permanent. We must remain vigilant and ensure people get the relief they need and deserve. I appreciate the opportunity to engage with the Committee and look forward to a timely delivery of the Phase I report later this year.
With warm regards, I am
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