Congress delays reform of National Flood Insurance Program

PHILADELPHIA . The 2006 hurricane season was far more benign than predicted, but it may have done serious damage to efforts to salvage the floundering National Flood Insurance Program.

When Congress adjourned two weeks ago, a bill to overhaul the program, whose debt to the U.S. Treasury is $17.3 billion, died in a Senate committee.

"It's amazing," said J. Robert Hunter, a former NFIP director and now an insurance expert for the Consumer Federation of America. "It's such a broken program, and (lawmakers) knew it."

Run by the beleaguered Federal Emergency Management Agency, the NFIP sells insurance that private firms long ago abandoned _ with good reason. Some of America's most flood-endangered properties are among the $800 billion in assets that the program insures for more than five million policyholders nationwide. About $50 billion of that property is in New Jersey and Pennsylvania, which rank seventh and eighth in flood losses nationally since the inception of the program.

The program's flaws, analyzed in The Philadelphia Inquirer series "A Flood of Trouble" in September, include heavily subsidized rates, dangerously antiquated maps of floodplains, and staggering losses paid on structures that are swamped repeatedly. Claims on one Philadelphia-area property, which FEMA has declined to identify, have been filed 22 times.

Experts say the NFIP overhaul effort encountered a perfect storm of indifference. Its chief elements were the mild hurricane season, which washed out any sense of urgency, and election-year politics.

Sen. Christopher Dodd, D-Conn., who will become chairman of the Banking Committee next month, said Congress was ready to try again. "I expect that the committee will take up this issue in the new Congress," he said in a statement last week.

NFIP specialists warn, however, that an overhaul would be neither easy nor popular. It would require raising rates and forcing more people who live in floodplains _ and even some outside, such as neighbors of levees _ to buy the insurance.

Meanwhile, the NFIP's losses from the 2005 hurricane season continue to swell. Claims from Katrina, Rita and Wilma, which exceeded $16 billion at last tally, are expected to top $20 billion, and most of that will come from the Treasury.

Given that the NFIP collects about $2 billion in premiums annually, the debt is unlikely to ever be repaid.

"It would be virtually impossible," said David C. John, an analyst with the Heritage Foundation, a conservative think tank that has called for an overhaul.

The interest payments alone for the two years that will end Sept. 30 are projected to reach $1.3 billion, FEMA spokesman Eugene Kinerney said.

If reform had been a condition for making money available, Congress might have been motivated to act, said Hunter, the former NFIP director.

On June 27, the House did pass a bill that included a call to increase premiums and forgive the debt. That turned out to be the high-water mark in the reform effort.

The Senate came up with what Hunter called a superior version prescribing even higher premiums, strong flood-mitigation measures, and more mandatory coverage. However, it was blocked by the Louisiana senators, who objected to the new rates as too high for their low-income constituents.

"You just can't have skyrocketing higher premiums," said Stephanie Allen, a spokeswoman for Sen. Mary Landrieu, D-La..

Landrieu, she said, also was troubled by a provision requiring residents near levees to buy the insurance. The bill never left the Banking Committee.

Higher rates made it a tougher sell in an election year, said John, the Heritage Foundation analyst. "It's not going to be a case where a politician is going to be able to deliver good news," he said.

Congress created the NFIP in 1968 after private carriers fled the flood market. Communities were required to take anti-flood measures if they wanted the insurance to be available to their homes and businesses.

Meanwhile, to identify flood hazards, the federal government undertook perhaps the biggest mapmaking project in history.

The NFIP offered discount rates on structures that predated the floodplain mapping. The theory was that lenders would force buyers of new homes to take out policies, but the lower rates were needed to lure the owners of older properties. With time _ in theory _ the older, flood-plagued homes would be razed.

On the contrary, those aged structures have been slow to disappear. Their owners pay rates as low as one-third of what they should be paying, given the flood risks, and they compose 90 percent of all repeat-claim properties.

The maps themselves have been a burden on FEMA, which can't keep up with the development and changing hydrology that are redefining floodplains.

As reported in the Inquirer series, a Temple University study of the Pennypack Creek watershed _ a 56-square-mile drainage area stretching from Bucks County through Montgomery County and into Northeast Philadelphia _ found serious deficiencies in the federal maps. FEMA had undercounted the structures in 100-year floodplains by 23 percent.

NFIP experts warn that more disasters unquestionably will be bearing down on the flood-insurance program. The 2006 hurricane season should not generate any sense of security, in the view of Loretta Waters, vice president of the Insurance Information Institute.

"This is an anomaly," she said. "The NFIP is going to run into the same problems in future disasters as it did in 2005."