Hurricane Florence Lessons Underscore Need for the National Flood Insurance Program Reauthorization Act of 2019

The 2019 hurricane season is now upon us, nine months after Hurricane Florence caused devastating flooding in the Carolinas. And this comes at a time when the Midwest and Southeast are reeling from heavy rains and flooding. Yesterday the House Financial Services Committee unanimously passed a bill to reform and reauthorize the National Flood Insurance Program. Here’s why those reforms are critical, informed by lessons from Hurricane Florence.

In some places, the historic rainfall accompanying that storm was more than double the rainfall from Hurricane Matthew, which hit North Carolina two years prior. The highest rainfall from Florence was recorded in Elizabethtown, NC, at 35.9 inches. The endless rain-filled days caused catastrophic, long-lived flooding far inland and widespread damages.  53 people lost their lives and there were $24.2 billion dollars in damages.

While the forecasts were remarkably accurate, the sobering reality was that many people were still unaware of the risk or did not have the resources to evacuate.

Congress has a critical opportunity now to reform the National Flood Insurance Program

While there are many solutions needed at the local, state, and federal levels, Congress has the opportunity to take lessons learned from Hurricane Florence (and other disasters) to reform critical pieces of the National Flood Insurance Program (NFIP). Established 50 years ago, NFIP was designed to provide flood insurance to properties at risk of significant flooding and to reduce overall flood risk primarily through a community’s adoption of floodplain management standards as well as mapping flood risk.

After 12 short-term NFIP reauthorizations, it was welcome news when this week the Chairwoman of the House Financial Services Committee, Congresswoman Maxine Waters (D-CA), introduced H.R. 3167, the National Flood Insurance Program Reauthorization Act of 2019. We applaud Chairwoman Waters and the Committee for their bipartisan efforts to reauthorize the program for five years and make critically important improvements in many areas (see this link for a section by section summary). The bill was passed unanimously out of the committee 59-0.

What are some of the lessons we can learn from recent hurricanes and other flood events that underscore the need for the reforms proposed in the House bill?

Lesson #1:  Congress and the Federal Emergency Management Agency (FEMA) must adequately map and communicate flood risk

My colleague Juan Declet-Barreto estimated how much flooding from Hurricane Florence occurred outside of FEMA’s designated Special Flood Hazard Area (SFHA) and the moderate flood area (the 1-percent or 1/100 annual chance and the 0.2-percent or 1/500 annual chance flood).

In three out of the 10 counties in South Carolina (30 percent), more than 50 percent of the flooding occurred outside FEMA flood zones. In 28 out of the 49 North Carolina counties that were flooded (57 percent), more than half of the flooding was outside the FEMA flood zones.

We found that overall, more than half of the flooding from Hurricane Florence in North Carolina and South Carolina occurred outside of FEMA’s designated 1-percent and 0.2-percent flood zones. Clearly, FEMA’s 1-percent and 0.2-percent flood zones are not adequately communicating flood risks. A national study found similar results: the US population is exposed to serious flooding 2.6 to 3.1 times more than previous estimates and that both population and GDP growth will increase exposure in the future and that this change will be exacerbated by climate change. This means that a large percentage of people were likely unaware of their flood risk and therefore did not buy flood insurance, or were not required to buy flood insurance.

When it comes to recovery, this amounts to a “double whammy”—both not knowing one’s own flood risk and not having the insurance to recover from property loss.

That is not a surprise when we consider that many of FEMA’s flood maps are outdated. In the Carolinas, for example, in many flood-prone areas, FEMA’s flood maps have not been updated in 20 to 40 years. In addition, FEMA maps are not taking into account future changes in conditions such as tidal flooding due to sea level rise and increases in extreme precipitation events, as well as growing development in floodplains and demographic shifts.

Last year, Carolyn Kousky with the Wharton Risk Center at University of Pennsylvania laid out five reasons why the nation fails to communicate flood risk. It comes down to the fact that we’re not indicating the true flood risk to homeowners and renters in ways that people can easily access it, understand the risk, and act on reducing their risk.

How does the House bill help to improve flood risk mapping and communication?

• Funding. Sec. 201 of the House bill (H.R. 3167) would authorize $500 million per year over five years to expand flood mapping coverage and update flood mapping such that it incorporated future flood risk. The funding and incorporation of future flood risk are critically important provisions to improve the accuracy and communication of flood risk nationwide.
• Urban flood Study. Sec. 203, the “Flood Mapping Modernization and Homeowner Empowerment Pilot Program,” would create a pilot program to improve mapping and assessment of urban flood risk.
• Transparent risk disclosure and communication. Chairwoman Waters’ manager’s amendment includes “Sharing Access of and to Information,” which ensures that private insurance companies must share their policy claims and damages to FEMA so that FEMA and US taxpayers can have a full picture of flood insurance coverage, damage assessments, and claims. It also includes a provision that allows homeowners access to NFIP and private flood insurance policy claim information so that any homeowner can know the true flood risk of the property and any flood insurance claims made on the property. We know that across the nation, the disclosure laws vary state by state. The first step to becoming better prepared for the next flood is for a property owner to understand his or her risk. That’s why we enthusiastically support this section of the manager’s amendment.

Lesson #2:  Congress and FEMA must increase the coverage of flood insurance across the nation

A recent study estimated the percent of people who did not have flood insurance during five recent disaster events and found that between 60 and 99 percent did not have flood insurance. Additional Hurricane Florence analysis estimates that fewer that 10 percent of households affected by Florence in North and South Carolina were likely to have had federal flood insurance. Without that insurance, flood victims will receive less funding for repairs and the assistance will come more slowly.

There are many reasons why so few people buy flood insurance, including:

• Many homeowners mistakenly believe their homeowners insurance or renter insurance covers damages due to flooding.
• As our analysis and other analysis indicates, the current FEMA designated flood zones on the Flood Insurance Rate Maps (FIRMs) provide a false sense of security for those people who are outside of the designated 1-percent and 0.2 percent flood zones.
• People with low to moderate incomes living in the nation’s floodplains are less likely to be able to afford flood insurance.
• Some insurance policies don’t reflect actual flood risk because rates are kept artificially low for many reasons, including grandfathered provisions.

Unfortunately, those without flood insurance will have less resources to recover after a disaster like Hurricane Florence. According to FEMA’s Acting Administrator Peter Gaynor, the average payout after Hurricane Harvey for emergency disaster assistance was approximately $3,000, while the average payout for flood insurance holders was more than $117,000 (for a list of average claims from 1980 to 2017, follow this link).

Given the widespread and devastating impacts from Hurricane Florence, many counties in both states were eligible for federal disaster assistance. To date, North Carolina has received $1.3 billion in federal disaster assistance while South Carolina received $73.8 million in federal assistance. We know that every dollar helps but recall that only roughly 10 percent of the people in the Carolinas had flood insurance, and that flood insurance payout provides a larger pot of funds for an individual to recover compared to those who solely rely on disaster assistance.

How does the House bill make positive strides to increase flood insurance coverage?

• Community-Based Insurance Pilot program. Sec. 305 establishes a Voluntary Community-Based Flood Insurance Pilot Program which is a notion that has gained attention over the years and would be one single policy that a local government would purchase that covers a designated group of properties. This is one way to enhance widespread insurance coverage and increase community resilience while also potentially offering lower insurance premium rates.
• Studies.
  • Sec. 404 requires FEMA to study flood insurance participation rates so that we can know how well the different provisions are helping to increase coverage.
  • While Sec. 405 requires a study on how to increase flood insurance participation. The amended version expands this to provide an even more robust study.

Lesson #3:  Congress must act to provide affordable insurance for the most vulnerable

Most of the counties flooded by Florence in North Carolina, as well as the 10 counties flooded in South Carolina, rank high in measures of “social vulnerability” as assessed by socioeconomic and demographic factors. Congress must ensure an affordability provision is included in the NFIP reauthorization to increase access to insurance in vulnerable communities—arguably the hardest hit by events like Florence.

How does the House bill help to ensure flood insurance is affordable? The House bill would establish the following:

• An affordability pilot program. Sec. 102 of the House bill establishes a Demonstration Program for Policy Affordability. Much work (FEMA, Government Accountability Office, and the National Academy of Sciences Report 1 and Report 2) has been done to understand how Congress could establish an affordability program within NFIP. This is a first step to provide a means-tested approach that would decouple the subsidy from the property and instead attach it to the policyholder base on the financial need. This pilot program will help provide access to affordable flood insurance while also communicating the actual flood risk to property owners. The pilot program also requires a report back to Congress so FEMA, Congress, and the public can learn what worked and what can be improved upon.
• Monthly premium payments. Sec. 104 would establish Monthly Installment Payment of Premiums to allow policy holders to pay monthly payments instead of one lump sum.
• Inclusion of replacement cost. The House manager’s amendment includes an important provision that would help to ensure affordable insurance rates by allowing FEMA to take into account the replacement cost of a property when determining premium rates.
• Resources for flood risk reduction measures. A number of sections of the bill would help property owners and communities reduce their flood risk, which could help to reduce a property owner’s flood insurance premium:
  • Sec. 105 would establish a State Revolving Loan Funds for Flood Mitigation, which will provide states with funding for flood risk reduction measures including elevation or relocation. This will also help low to moderate income property owners to become more resilient and could help to reduce their flood insurance rate.
  • Sec. 301 would establish an increase in the Increased Cost of Compliance program from $30,000 to $60,000 which will help a property owner, particularly a low- to moderate-income owner, cover the cost of mitigating a substantially damaged building.
  • Sec. 306 provides $200 million each year for five years for the flood mitigation assistance program, which will help reduce flood risk through different mitigation measures such as elevating a home above the base flood or buying out a property that is repeatedly flooded to keep that in permanent open space.

Next steps toward long-term, holistic NFIP reauthorization

We applaud Chairwoman Waters and the House Financial Services Committee for offering a bill that brings bipartisan efforts on critically important changes to NFIP. While the House bill provides numerous and badly needed improvements, a few outstanding issues include:

• A provision that ensures the private insurance sector helps to sustain the multiple functions of the NFIP flood risk management functions by including a fee to help support mapping and mitigation measures specifically (learn more on why this is important).
• A forgiveness of FEMA’s debt to the US Treasury in order to limit FEMA’s costly interest payments. The Congressional Budget Office (CBO) report from 2017 underscores why forgiving the debt makes sense and recommends options such as setting a certain threshold above which any additional claims would be paid from the general fund. However, debt forgiveness must only happen in concert with critical program reforms that ensure a more sound financial footing, as the House bill proposes.
• While the House bill makes many strides in supporting studies, mapping, and mitigation measures that will be needed in a changing climate, over the longer term, it is important for the program to more clearly reflect the growing flood risks from climate change and other factors.

The amended National Flood Insurance Program Reauthorization Act of 2019 will move the nation towards better flood risk management, disclosure, mapping, insurance rating, affordability, and coverage as well as consumer protection. We applaud the leadership of the House Financial Services Committee for unanimously passing the bill out of committee.

We urge the full House and the Senate to be steadfast in enacting legislation that moves these critical reforms forward while reauthorizing the NFIP for five years. It’s time to learn from the lessons from the past. The House bill makes sure that when it come to the devastating impacts from flood events, as a nation, we’ll be better informed and ready for the next flood event. And that’s something to celebrate.