Finance Article review A $20 Billion Debt Hole Gets Deeper on Flood-Insurance Gridlock

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A $20 Billion Debt Hole Gets Deeper on Flood-Insurance Gridlock
2018-09-11 08:00:00.1 GMT

By Ari Natter
(Bloomberg) — U.S. taxpayers who spent billions of dollars
after a trifecta of hurricanes last year are poised to do so
again after a fix to the nation’s troubled flood insurance
program remains stalled in Congress — and as a dangerous new
storm barrels toward the southern Atlantic coast.
The program, administered through the Federal Emergency
Management Agency, is the primary source of flood insurance in
the U.S., with about 5 million policy holders across the
country. But it remains more than $20 billion in debt and some
experts say it must be reformed in an era of very powerful
storms like Harvey and Irma.
“They have not dealt with the gorilla in the room which is
proactively addressing these types of disasters for the future,”
said Rob Moore, a senior policy analyst at the Natural Resources
Defense Council. “Too much of the U.S.’s response to natural
disaster is completely reactionary, we throw a bunch of money
after it happens.”
The debate has taken on greater urgency in the 2018 storm
season as Hurricane Florence gathers strength in the Atlantic
Ocean. Florence, which was declared a Category 4 hurricane on
Monday, has taken aim at a vast stretch of the southeast U.S.
coast from South Carolina to Maryland. It is poised to become
the strongest hurricane in almost 30 years to threaten the
Carolinas and has already prompted widespread evacuations.
Instead of paying to rebuild, Moore said, Congress should
direct FEMA to provide more assistance to relocate residents
from areas that are vulnerable to flooding; fortify and elevate
less exposed properties from wind and water; and other
mitigation efforts.
Congress spent $120 billion on disaster relief in the wake
of last year’s hurricanes and wildfires, while forgiving $16
billion in debt accrued by the National Flood Insurance Program.
Until the 50-year-old program stops paying to rebuild homes
that have flooded an average of five times — so-called Severe
Repetitive Loss Properties — and make other changes, the losses
will keep mounting, Moore said.
Related: ‘Crazy Time’ for Carolinas Hotels as Hurricane
Florence Nears
Legislation that passed in the House last November would
begin to make some of those revisions, requiring FEMA to tell
homebuyers if their properties have flooded before and require
communities to come up with plans for minimizing flood risk.
The bill, the 21st Century Flood Reform Act (H.R. 2874),
would limit future coverage and discounts for high-risk
properties, modify premiums and surcharges paid by
policyholders, expand opportunities for private insurers to sell
policies, offer assistance to low-income households, and
authorize financing for flood mitigation assistance.
But the Senate has yet to act on the measure. Congress has
extended the flood insurance setup without change seven times
over the past year, with the latest extension set to expire on
Nov. 30.
By then, the severity of Hurricane Florence will be known.
The duration of the rainfall and the trajectory that the storm
eventually takes will be key to the flooding risk, according to
James Belanger, a senior meteorological scientist at the Weather
Company, a unit of IBM. The current trajectory “is really worst
case scenario for rainfall and flooding impact of the central
part of North Carolina as well as Virginia,” Belanger said in an
interview.
Although there are more than 444,000 NFIP policies in force
in North Carolina, South Carolina, and Virginia, the vast
majority of those policies are for properties located in the
Special Flood Hazard Areas on the NFIP Flood Insurance Rate
Maps, with very little flood insurance being obtained in flood-
prone areas outside the mapped flood plains, Samantha Medlock,
head of North America capital, science and policy for Willis
Towers Watson, said in an email.
This means that many families will suffer uninsured losses,
since standard homeowners insurance policies do not cover flood
damage, she said.
FEMA’s public affairs office did not respond to emails
seeking comment.
Currently, the National Flood Insurance Program has about
$10 billion in borrowing authority remaining, and Hurricane
Florence isn’t likely to consume all of the funding, said R.J.
Lehmann, director of finance, insurance and trade policy, for
the R Street Institute, a Washington think tank.
“They are prepared to handle this storm,” Lehmann said.
“But if we multiple storms — there are others out there in the
Atlantic Basin — things could get a little more dicey.”

–With assistance from Michael Smallberg and Ivan Levingston.