The Coalition for Sustainable Flood Insurance (CSFI) a national coalition of which FIRM is a member, has shared a report released by Senator Bill Cassidy (R-LA) titled “The Flood Insurance Crisis: A Comprehensive Breakdown on Rising Flood Insurance Premiums.” Click here to read the full report and here to read the one-pager. In his accompanying press release, Sen. Cassidy affirmed that, “We must understand the problem to properly diagnose it and address it. This report clearly lays out why flood insurance premiums are out of control, but also why there is reason to hope.”
The Cassidy report cites CSFI’s white paper, “An Evaluation of Risk Rating 2.0 on Impacts NFIP Affordability.” You may review the white paper in full here and the executive summary here. While some recommended actions have been addressed since the paper’s release, such as FEMA’s release of full-risk rates, many recommendations remain relevant and urgent.
In his concluding remarks, Sen. Cassidy outlines three recommended actions for FEMA: “If FEMA wishes to repair its relationship with stakeholders, it should consider the following steps: (1) balancing affordability considerations with other concerns in its methodology, (2) sharing Risk Rating 2.0’s actuarial information for greater transparency, and (3) reevaluating and reintroducing Risk Rating 2.0 under the rulemaking procedures set by the APA. While not a panacea, such steps would ease the misgivings that have developed after the introduction of Risk Rating 2.0 and would help rebuild the working relationship needed for NFIP to succeed.”
Cassidy’s report provides a comprehensive overview and an analysis of the NFIP, demonstrating historical background and the current state of the program. Some of Sen. Cassidy’s many findings include:
- While the cost of a full-risk premium represents less than 2% of the median household income for most states, it exceeds that threshold for ten states. Similarly, the full-risk premiums represent more than 3% of the household income of black homeowners, higher than the proportion of household income for other ethnic groups
- Even though FEMA is required to “assess the need to revise and update all floodplain areas and flood risk zones” every five years, they are updated less frequently in reality. Because FEMA does not have a uniform system of monitoring changes in topography, the pace of updates has varied with disparate results. Most FIRMs are estimated to be between fifteen and twenty years old, with some last updated in the 1980s. The maps for Monroe County were last updated in 2005. FIRM worked with the municipalities to submit an appeal to proposed new maps in 2021, and as of this writing, FEMA has yet to respond to the appeal. Since the implementation of Risk Rating 2.0, the use of flood zones for calculating premiums has discontinued although flood maps are still used for floodplain management purposes, namely in identifying flood zones.
- The absence of an express Congressional mandate raises a serious question of whether FEMA was actually authorized to implement Risk Rating 2.0. FEMA would argue that it has broad authority to set rates under the Flood Act and that the rate hikes under Risk Rating 2.0 are within the statutory limits. However, Risk Rating 2.0 is an overhaul of NFIP that goes far beyond setting premiums.
- FEMA has kept the actuarial analysis behind Risk Rating 2.0 close to its chest, leaving policyholders in the dark on how their policies are being calculated. Transparency issues also hinder the construction of mitigation efforts as policyholders lack guidance on how different measures reduce premiums. The Office of Financial Institution Adjudication reached the same conclusion in its report—the lack of clarity prevents homeowners from knowing how “to reduce their flood risk” and local officials from deciding on the best “mitigation funding opportunities.”