CBO says flood insurance program has $1.4 billion annual shortfall
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Aerial footage shows that Houston’s Buffalo Bayou is slowly beginning to drain.
USA TODAY
The debt-ridden National Flood Insurance Program, which is bracing for a potentially unprecedented number of claims from Hurricane Harvey, takes in in about $1.4 billion less than it needs annually to pay projected costs, the Congressional Budget Office said Friday.
But closing that gap would require Congress to balance sometimes competing goals of encouraging more people to buy coverage by holding down rates, and pricing coverage according to the risk posed by flood-prone properties, especially in coastal areas, CBO said.
In most counties around the country, the flood insurance program collects more than it needs, with some producing significant surpluses. Those funds offset significant shortfalls in a small group of counties, primarily along the southern Atlantic and Gulf coasts, CBO found.
The flood insurance program, created in 1968 as commercial insurance companies began to drop flood coverage entirely, already has a $25 billion debt, primarily from claims form Hurricane Katrina in 2005 and Superstorm Sandy in 2012. That debt, which federal officials have said policyholders will never be able to repay, is expected to grow as claims from Hurricane Harvey are filed.
Flood insurance: Harvey flood claims will hit program as Congress struggles to fix it
More: Trump set to ask Congress for $5.95 billion for Harvey relief
Congress faces a Sept. 30 deadline to renew the flood program, but there are competing plans pending in the House and Senate, and a short-term extension is possible. President Trump’s homeland security adviser, Tom Bossert, said at a White House briefing on Thursday that decisions about “policy ideas” for flood insurance would be made in “late fall.”Â
Potential solutions to close the funding gap include increasing fees or surcharges, reducing subsidies that primarily go to older properties built before the program existed, or targeting subsidies to low-income households.
“Since the NFIP’s inception, lawmakers have struggled to find the appropriate balance,” the report said. “Actuarially sound rates would help communicate flood risk to homeowners and ensure the program’s sustainability, but holding rates down could save policyholders from facing large new costs or rate increases that could impose financial
hardship and depress property values, potentially causing some to forgo coverage.”
The report says there is “cross-subsidization” in the program, with some counties paying more than is likely to be needed to hold down rates in other areas.
Maps in the report show counties along the New Jersey Shore, New York’s Long Island, and the Long Island Sound in Connecticut all generating surpluses of $2 million or more. Meanwhile, about two dozen Atlantic and Gulf Coast counties in South Carolina, Florida, Alabama, Mississippi, Louisiana and Texas show shortfalls of more than $10 million.
CBO estimated the cost for annual claims at about $1 billion higher than the estimate that the Federal Emergency Management Agency, which runs the program, uses to set rates for about 5 million policyholders nationwide.
The flood insurance program costs about $5.7 billion a year but only takes in $4.3 billion, CBO said. Costs include $3.7 billion to pay expected claims;Â $1.1 billion in commissions to insurance companies that sell and service policies but do not take any of the risk; and $300 million in interest payments to the U.S. Treasury for past debts.
The average policy costs about $520, but premiums vary significantly, with two-thirds of them falling between $420 and $1,330, CBO said.
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