The Biden administration is proposing a massive overhaul of federal flood insurance that would prevent the government from insuring newly built homes in flood-prone areas and would drop coverage for homeowners who receive repeated claims payments.
The administration also is proposing a nationwide disclosure law that would require homebuyers and renters to be told about a property’s flood history before they buy or lease a residence. And no new federal flood insurance policy could be written for any commercial building, regardless of its location or construction date.
The proposals, contained in a 104-page legislative package sent recently to congressional leaders, are the most dramatic attempt to restructure the government’s National Flood Insurance Program since its creation in 1968.
The NFIP provides most of the nation’s flood insurance, covering nearly 5 million properties. It also has historically charged discounted premiums that do not reflect the actual flood risk of properties. The discounted rates have been criticized for encouraging development in flood-prone areas and discouraging property owners from undertaking flood protection.
The administration’s plan could significantly slow coastal development by preventing the NFIP from insuring new construction in areas that are known to be at risk of flooding.
Development in flood-prone areas still would be allowed, but property owners would have to buy flood coverage from private-sector insurers — which likely would be more expensive than NFIP policies — or go without insurance.
“This means ending the federal subsidy for new construction,” former Federal Emergency Management Agency Administrator Craig Fugate said, referring to the discounted premiums. FEMA runs the insurance program.
Fugate supported the proposal, saying it would result in insurance premiums that reflect flood risk more accurately.
“Let private sector price it, market it, and if you can’t afford private-sector prices for flood insurance, maybe you shouldn’t be building there,” Fugate said. “If you’re really going to be serious about addressing climate impacts, you’ve got to price the risk.”
The Biden administration said in its legislative package that ending NFIP coverage for new buildings in flood zones would create “an inventory of new flood risk properties that private property insurance companies could compete for in a marketplace without a subsidized government program.”
Fugate also supported the proposal to bar new NFIP policies for any commercial building.
“The thing about commercial buildings is, why are you as a taxpayer underwriting flood risk to Amazon?” Fugate said, referring to the world’s largest retailer.
The legislative package taken together marks an effort to transform the NFIP from a taxpayer-subsidized program to an entity that acts more like an insurance company and declines to cover high-risk policyholders.
Each of the administration’s proposals requires approval by Congress, which has in recent years been unwilling to make major changes to the NFIP.
“I continue to be skeptical that there’s much movement for significant reform in Congress,” said R.J. Lehmann, a flood insurance expert at the International Center for Law & Economics. “The voices that are opposed are much louder and more organized than the voices for reform.”
Lehmann called the administration’s package “clearly a move in the right direction.”
The Senate Banking Committee, which oversees the NFIP, is holding a hearing Thursday on the flood program.
The biggest policy shift would require the NFIP to drop coverage for property owners who receive multiple claims payments. The NFIP has never denied flood insurance to anyone. But that practice has led the program to pay tens of billions of dollars in claims on properties that have been flooded more than once and has discouraged the owners from protecting their homes from flood damage.
“The availability of flood insurance creates a moral hazard,” the administration wrote in its legislative package. “The NFIP must have better tools to address insured structures that have experienced multiple flood claims.”
The administration’s proposal would force the NFIP to drop coverage on properties that receive four claims payments, each worth at least $10,000.
The proposal marks a much more aggressive approach to so-called repetitive-loss properties. Administrations since the 1990s have dealt with the properties by prioritizing them for mitigation projects that involve either selling a home to the government for demolition or elevating a structure above flood level. But the mitigation programs have made only a small dent in the number of properties that receive multiple claims payments.
Fugate, the former FEMA administrator, said the new strategy would force owners of flood-prone homes to “take action by either accepting a buyout, doing an elevation or losing their insurance.”
“This is good government,” said Fugate, who ran FEMA during the Obama administration.
The Biden administration also would create a nationwide requirement that property owners and landlords disclose flood risk to prospective homebuyers and tenants.
The proposal effectively would remove a patchwork of state flood disclosure laws that leave people in wide swaths of the country — including Florida and New Jersey — with no formal mechanism for knowing the flood history or flood risk of a property they might buy or rent.
The administration proposal would require the disclosure of any previous flood damage, flood insurance claim or requirement to have flood insurance.
“That’s a big plus,” said Joel Scata, a climate attorney with the Natural Resources Defense Council and expert on disclosure policies. “One of the main issues with flooding in the United States is there’s a significant lack of transparency about flood risk.”
FEMA would enforce disclosure by requiring counties and municipalities that participate in the federal flood insurance program to have disclosure policies in effect, either through local or state laws. Almost every U.S. county and municipality with flood exposure is part of the NFIP.
Both Scata and Lehmann, the insurance expert, said the disclosure proposal could gain support in Congress, where lawmakers have sponsored bipartisan measures to establish a disclosure requirement.
“Realtors seem to be open to negotiation on some sort of flood disclosure,” Lehmann said, adding that real estate websites have started to include flood risk information on properties. “That information is becoming more available, but certainly it should be available to every homeowner.”
The administration also is asking Congress to cancel the NFIP’s $20.5 billion debt to the U.S. Treasury and to create a subsidy program to help low- and moderate-income households buy flood insurance.
The NFIP borrowed money from federal taxpayers after Hurricanes Harvey, Irma and Maria caused massive flood damage in 2017, and the program did not have enough money in reserves to pay insurance claims. The administration said the debt is “beyond the ability of NFIP policyholders to repay” and is forcing policyholders to pay $400 million a year in interest to the Treasury.
The administration’s legislative package was written by Alice Lugo, the assistant secretary for legislative affairs at the Department of Homeland Security, which oversees FEMA. The package was sent to legislative leaders on May 11 and was posted on FEMA’s website on June 3, according to FEMA.