Never a stranger to high water, Louisiana this summer became a key battleground in America’s conflicted debate about the risks of rising seas, storm surges, floods—and the swelling public cost of insuring properties against them.
No state offers a sharper view of the nation’s divided attitudes about insuring flood-prone properties. And few places have as much experience living with unruly water.
On Capitol Hill, Louisiana lawmakers have introduced several bills to delay a ramp-up in federal flood insurance premiums for an estimated 252,851 properties nationwide. That’s about 5% of all properties covered under the National Flood Insurance Program.
Scheduled to begin Oct. 1, the shift to higher rates is mandated by a 2012 law that reauthorized the program, shoring up its insolvent finances by scaling back subsidies so that premiums better reflect true actuarial risk.
Some fear the increased rates could undercut coastal property markets, especially in places that are deemed to face high flood risk, like much of Louisiana.
Louisiana has become a hotbed of resistance to the new insurance risk ratings and pricing.
“This law will not solve the deficit problem,” said Windell Curole, general manager of the South Lafourche Levee District, which builds and maintains flood control structures to protect a string of communities along Louisiana’s Bayou Lafourche. “It will drive people out of their homes, and the bank will be left holding,” he predicted.
Curole joined with other Louisiana leaders in August to press the Federal Emergency Management Agency, which runs the flood insurance program, to recognize the role of levees that aren’t federally accredited but still protect properties well. Levees in his district held back Hurricane Katrina, but they are shy of current federal design standards, so residents fear they may face exorbitant rate increases.
New draft rate maps from FEMA are classifying more properties as subject to high flood risks. The maps are meant as a guide to help property owners understand required mitigation measures to qualify for insurance (e.g., elevating a house) and the rates they may pay. But many property owners now say their homes are being classified inaccurately.
Malcolm Young, CEO of Louisiana Association of Realtors, said his organization strongly supports a delay in the new insurance rates. Young notes that the 2012 reauthorization law called for a study to evaluate affordability of flood insurance before premiums increase. That study hasn’t been completed, because Congress failed to appropriate enough money for it, he said.
Young reckons the planned increases “would be devastating to the housing market, and in Louisiana it would almost shut it down. Some people’s flood insurance would be more than their house payments.”
Greater New Orleans Inc., a regional economic development authority, argues that elimination of “grandfathering” in the NFIP could hit hard even for some homes and businesses that were built to code, above flood elevations, and have never flooded. Flood insurance for one property in St. Charles Parish, valued at $171,900 and never inundated, would rise from $388 today to $23,946 per year, according to a GNO presentation delivered at a regional Louisiana Realtors meeting.
The backlash against rising rates in Louisiana and elsewhere marks a sharp turn since the summer of 2012.
Just over a year ago, U.S. lenders joined hands with business and coastal leaders to persuade Congress to reauthorize and stabilize financing for the NFIP. The program was stuttering along on temporary funding measures and burdened by $18 billion in debt. Putting the NFIP on sound fiscal footing had broad appeal for policymakers, community leaders and real estate professionals.
Urging reauthorization of the flood insurance program in May 2012, the American Bankers Association stated: “As we enter hurricane season, America cannot afford a lapse in the program. Without flood insurance, many residential and commercial real estate transactions across the country will come to a stop, as federally backed mortgage loans cannot legally be secured without this critical protection. Failing to reauthorize the NFIP could jeopardize nearly 40,000 mortgage closings per month.”
The Biggert Waters Flood Insurance Reform Act sailed through Congress with a strong bipartisan majority: the house vote was 406-22.
But stabilizing the program’s finances meant raising cheap insurance premiums that had become deeply imbedded in many real estate markets along the nation’s coasts and river valleys since the NFIP started in 1968.
That transformation is apparent in many Louisiana communities, even where storm surge is a routine event.
Dean Blanchard, owner of a thriving shrimp packing plant on Grand Isle, La., said this sandy barrier island along the Gulf of Mexico was a humble place when he arrived as a teenager 35 years ago.
“People took old wood they had around and they built what they called a camp,” said Blanchard. “If the water came up and the wind knocked them down, it was no big deal. They’d come back and build another camp.”
Today much of the beach on Grand Isle is lined with modern vacation homes that tower above the sand on stilts. Blanchard identified a straightforward economic process.
“Nobody would build million dollar homes if the government hadn’t given you low-cost flood insurance,” he said. “The bank wouldn’t have lent you the money to build it.”
