Taxpayers stiffed for underpriced flood policies
Attached below is an article regarding a recent freeze to rate hikes that were approved last year for the National Flood Insurance Program. The NFIP is where consumers are able to purchase flood policies for their homes or businesses. Flood policies have long been underpriced for the risk they represent. As a result, since the NFIP is a government run program, taxpayers end up carrying the load for subsidizing the underpriced risk.
Personally, I think this is wrong. Why should we as taxpayers have our tax dollars spent to pay for some rich guy’s expensive beach home. If he wants to build a beach home where he knows it will eventually flood then he should assume the entire risk. As a tax payer I want my tax dollars to be used more prudently.
As usual the views expressed here are those of James Brown- owner of Lone Star Insurance Agency.
What are your thoughts?
Coastal lawmakers, fearing rate hikes, cross party lines to keep flood insurance subsidies
Evan Lehmann, E&E reporter
This article was taken from eenews.net ClimateWire: Friday, June 7, 2013
Nearly a year after Congress was hailed for moving to fix the debt-ridden flood insurance program, coastal lawmakers are trying to stall key measures intended to slow shoreline development and buttress the program against looming threats. One example is Andrea, this year’s first tropical storm, which is giving the East Coast the first taste of what is being predicted to be a very active hurricane season.
The House passed an amendment Wednesday night freezing flood insurance rates for one year, delaying price hikes approved last summer that were meant to remove politically suppressed insurance rates for homeowners who choose to remain in the most risk-prone places.
The vote of 281-146 defied commonly held partisan assumptions, with 94 Republicans joining 187 Democrats to support the measure prolonging a subsidy that critics say exacerbates taxpayer exposure to unpredictable natural hazards like Superstorm Sandy. Sandy added $9.7 billion to the program’s debt.
The vote also revealed tensions between conservative fiscal principles and efforts to retain federally discounted insurance prices for flood-threatened constituents. Some conservatives from coastal districts say subsidized insurance prices must go up but at a slower pace than was outlined in last year’s landmark legislation requiring 25 percent annual increases for high-risk homes. That view, though, is not roundly accepted by the party; 125 GOP members voted against the amendment, along with 11 Democrats.
“I’m a fiscal conservative,” said Rep. Steven Palazzo (R-Miss.), an amendment co-sponsor who blames the government for attracting people to floodplains with low rates. “I believe you should address the moral hazards. But we’ve produced those moral hazards.”
“So the government can’t just wake up one day and say, ‘OK, we’re no longer subsidizing risk,’ when [it’s] partly to blame for people moving into these high-risk areas to begin with.”
The Senate didn’t follow the House’s lead. Sen. Mary Landrieu (D-La.) failed to secure a vote yesterday for a similar amendment, which sought to delay rate increases for three years. Landrieu temporarily stalled the farm bill this week by impeding Republican amendments after Sen. Pat Toomey (R-Pa.) put a hold on her flood measure. Earlier this year, Landrieu tried to attach her amendment to a water resources bill.
“We weren’t able to bring it up on the farm bill, but it’s still very much alive, and we’re going to have a vote on it as soon as we can find the right vehicle in the Senate,” Landrieu said yesterday.
Inland ‘suckers’ pay the bills
The efforts sparked consternation from budget hawks, conservative observers and environmentalists. Steve Ellis, vice president of Taxpayers for Common Sense, said coastal lawmakers would reap the benefits of freezing rates while leaving everyone else as “suckers.”
“Premiums that actually reflect the level of risk provide dollar and cents incentives to mitigate and reduce risk,” he said in a statement. “By delaying them, losses will increase and the program will continue down its death spiral of debt.”
The amendments come amid a collision of factors pushing up flood insurance prices. Last year’s legislation sponsored by former Rep. Judy Biggert (R-Ill.) and Rep. Maxine Waters (D-Calif.) requires rates to rise 25 percent annually on some repeatedly flooded houses, second homes and businesses, and on properties where the cost of past floods exceed its selling price. The increases would continue until premiums match the risk.
Ongoing updates to floodplain maps by the Federal Emergency Management Agency that enlarge risk-prone areas are also resulting in higher prices. Observers say that a small number of people may be affected by both changes, an effect that can substantially push rates upward. The hikes are not expected to reach sky-high levels, amounting to tens of thousands of dollars annually, that might be seen on some New Jersey properties flooded during Sandy that fail to meet new elevation standards, they say.
FEMA says 5 percent of policyholders nationwide, or about 253,000 families and businesses, will be subject to immediate rate increases under the Biggert-Waters legislation. More than 578,000 policies with subsidized rates, or 10 percent of U.S. customers, won’t see rates rise until the property is sold or the policy lapses. Eighty-one percent won’t be affected by the law’s rate changes.
The amendments are likely precursors to broader legislative efforts. Several lawmakers in both chambers have introduced legislation to temporarily freeze rates for high-risk homes, provide discounts to properties behind levees or delay rate hikes when homes are sold to new owners.
Focus help on the poor?
Most insurers, environmentalists and many conservative lawmakers say those steps could shoulder taxpayers with liability, expose more homes to damage and encourage shoreline development as seas rise and storm surge increases.
“Senator Landrieu’s amendments and her bill ostensibly keep us from making those changes that are putting this program on sound financial footing and could ultimately drive the program further in debt or lead to an erosion of the program,” said Joshua Saks, legislative director for the National Wildlife Federation. “That’s a real problem.”
Not all the provisions are seen as nettlesome. Sen. David Vitter (R-La.) introduced a bill yesterday that would combine rate freezes with increased funding for mitigation like raising homes and installing hurricane shutters. Private insurers describe those steps as a good way to reduce damage.
Palazzo from Mississippi, whose coast was scoured flat by Hurricane Katrina in 2005, is pushing two bills: One would limit FEMA’s ability to raise rates above 10 percent for a decade. The other promotes a mitigation program.
But whether they can attract Republican or Democratic support remains to be seen. Conservatives are often wary of funding improvements to private homes with public money, while Democrats might take issue with how Palazzo plans to get a pot of money: He wants to eliminate the Energy Star program to pay for mitigation.
“I’m not sure what I think about that,” said Rep. Ted Poe (R-Texas), whose district abuts the Gulf of Mexico. “I’ve got some concerns about the government paying people to flood-proof their homes, so to speak.”
Supporters of rate increases say Landrieu, Vitter and Palazzo should narrow down their efforts to freeze price hikes. Instead of retaining subsidies for all of the targeted policies, including people who can afford to pay adequate rates, the legislators should zero in on helping low-income homeowners, they say.
“There is a more targeted way to address the problems Senator Landrieu is raising, and that is to provide means-tested subsidies only for people who truly need it,” said Saks of the National Wildlife Federation.