Senate considers flood insurance reforms as program faces another deadline

A man carries a child after being rescued from rising floodwaters due to Hurricane Harvey in Spring, Texas, in 2017. The government flood insurance program is slated to expire on March 8, and some lawmakers expressed concern that the program and the administration’s efforts to improve it have rendered flood insurance unaffordable for many families.

Bloomberg News

WASHINGTON — The Senate Banking Committee renewed a push to extend the flood insurance program, which can be critical to mortgage bankers’ ability to close housing deals, ahead of the program’s expiration March 8. 

Continued funding for the National Flood Insurance Program could have been a casualty of the near-government shutdown in the fall of last year, a move that would have endangered thousands of closings on home sales per week. 

Although the program enjoys bipartisan support, efforts to reform it and make it sustainable for a growing number of natural disasters and costly flooding has, so far, hit dead ends in Congress. Instead, the program has seen 28 short-term extensions since 2017. 

Flood insurance is mandatory for any property in a high-risk area that carries a mortgage from a federally backed or federally regulated lender. Should there be a lapse in the flood insurance program, the program cannot sell new flood insurance policies, nor can it renew old ones — though existing policies would remain in effect until their expiration date. 

Concerns arose over affordability at a Senate Banking Committee hearing on Thursday. Sens. Bob Menendez, D-N.J., Bill Cassidy, R-La., and John Kennedy, R-La., have introduced a bill to make the program more affordable to homeowners, capping rate increases to 9%, among other provisions. 

But lawmakers said that changes made by the Biden administration have actually made flood insurance more expensive. The new pricing model developed by the Biden administration — known as Risk Rating 2.0 — was intended to lower premiums by more precisely calculating risk, but the lawmakers said that’s not how it’s played out. 

“They said a million people of the five million people [with flood insurance policies] will see their rates go down,” Kennedy said. “I haven’t talked to a single person saying their rates go down. This is just an excuse to raise premiums and they don’t care. The whole purpose of the National Flood Insurance Program is to provide a product that people can afford in my state.” 

Menendez had similar complaints. 

“Since FEMA recently changed its rating methodology, the program has lost 150,000 policyholders. FEMA itself has estimated that it will lose 1 million policyholders by the end of the decade due to the premium increases,” he said. “In Paterson, New Jersey, where the median household income is $50,000 a year, policyholders will see their premiums increase from an average of $1,500 a year to an average of $4,000 a year. In Keansburg, New Jersey, where the median household income is $76,000, 1,000 policyholders will go from an average of $1,300 to $3,500. The list goes on.” 

Cassidy, who’s not on the Senate Banking Committee but who spoke at the beginning of the hearing to promote the bill alongside Menendez and Kennedy, said that the Risk Rating 2.0 has “made flood insurance simply impossible to afford — and some case policies are rising over 1,000%.

“At this point, we know that we’re in an actuarial death spiral, where people will be dropping insurance they can no longer afford,” Cassidy continued. Policyholders dropping insurance will leave “a smaller number of people for whom to put on the risk, therefore more expensive premiums and therefore more people drop.”