Less than one year ago I came before this committee and testified in support of modernizing and reauthorizing the National Flood Insurance Program. Last year, NFIP lapsed three times before the Senate authorized a one-year extension. As you know, that extension expires this September.
Another program lapse is entirely avoidable, and we should not allow that to happen. Similarly, another short-term extension of a flawed program would be unacceptable to me, as I believe it would be to most members of the Senate. I urge my fellow Committee members to enact a multiyear reauthorization and in the process fundamentally reform this program.
The National Flood Insurance Program is the source of protection from flood risk for most Americans. Nationwide, 5.6 million NFIP policies were in effect last year. Lapses and short-term extensions of the program create uncertainty and unnecessary burdens for property owners who depend on NFIP. Lapses also drive up the cost of administering the program and interrupt economic activity, including purchases of homes and other properties that require proof of flood insurance prior to closing. In speaking with Mississippians, it is clear that a long-term reauthorization with targeted reforms is necessary for coastal communities to prosper.
Though most Americans who need flood insurance rely on NFIP, the program itself has become insolvent and remains nearly $18 billion in debt. Without appropriate reform, modernization, and an extended reauthorization, our nation and the American taxpayers face serious consequences when—and it is only a question of when—the next big natural disaster occurs.
In my testimony of last year, I outlined specific reforms that would help put the NFIP back on a sustainable trajectory. These included:
• Improving enforcement by FEMA and lenders with respect to those required to purchase and maintain flood insurance.
• Charging rates that are actuarially sound and offering meaningful premium reductions for mitigation improvements.
• Updating FEMA’s flood insurance maps so that those in flood-prone areas are aware of the risk and obtain proper insurance coverage.
Perhaps the largest threat facing NFIP, and the one responsible for the vast majority of its current debt, is that of major hurricanes making landfall on our coasts. In 2005, Hurricanes Katrina, Rita and Wilma impacted a wide swath of the U.S. According to the Congressional Research Service, NFIP accrued approximately $17 billion in debt from flood claims caused by these storms alone.
It has been six years since Hurricane Katrina devastated the Gulf Coast. While we have made significant progress in rebuilding our communities and businesses, for many Mississippians recovery is still not complete. One of the greatest impediments to our efforts is the lack of affordable property insurance. The availability and affordability of wind insurance is crucial in any state where there is coastal exposure. For vast numbers of property owners, private insurance coverage for wind damage has not been available on the Gulf Coast since the 2005 hurricane season.
Hurricanes present a unique problem for coastal property owners because damages can be caused by multiple perils, including high winds and devastating storm surges. Currently, homeowners cannot purchase a single insurance policy to cover all hurricane-related risks. Wind losses are covered by private insurers or state-run wind pools, while coverage for flood damage is largely backed by the federal government through NFIP.
Many homeowners who suffered ruinous property damage from Hurricane Katrina were forced to go to court to determine which insurer was responsible for damage in wind vs. water disputes, even when they had appropriate coverage. Other property owners failed to purchase flood insurance because they relied on outdated federal flood zone maps that indicated they were not at risk for flooding. When their property was damaged by the storm, many insurance adjusters concluded that property damage had been caused by water alone and denied legitimate claims altogether.
In 2007, the Government Accountability Office issued a report which called for greater oversight of wind and flood damage determinations. In that report, GAO found that claims information collected by NFIP did not allow FEMA to effectively oversee damage determinations and apportionments after hurricane events.
In the words of the GAO, “…for a given property, FEMA’s ability to assess the accuracy of payments for damage caused only by flooding is limited because NFIP does not know what portion of the total damages was caused by wind and what portion was caused by flooding.” The report continued, “because both homeowners and NFIP policies can be serviced by a single Write Your Own private insurer, a conflict of interest exists during the adjustment process.”
To help resolve these issues, I recently introduced the Consumer Option for an Alternative System to Allocate Losses Act, or the COASTAL Act. This legislation addresses several problems that arose in the aftermath of Hurricane Katrina. Those problems include disputes and costly litigation between consumers and insurers over wind vs. water claims, inherent conflicts of interest that can arise when the same claims adjuster assesses damages that are and are not covered by his employer, and lack of oversight with respect to the adjustment process and claims paid by NFIP.
Sen. Roger Wicker, R-Miss., is a member of the Armed Services Committee and Banking Committee.
