A flood insurance program heavily subsidized by taxpayers and $25 billion in debt will end July 31 if not reauthorized by Congress.
Reauthorization is a chance for lawmakers to save the program by changing it — either by drastically cutting costs or increasing revenue.
But in the past year, Congress has handled several other deadlines by extending the existing National Flood Insurance Program for a few months at a time.
The program provides insurance for a quarter-million New Jersey property owners, and 5 million nationally. If it were to lapse, those policies would stay in effect, but wouldn’t renew and new ones wouldn’t be issued.
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The dilemma over the program illustrates how the rising costs of flood insurance, triggered by more flooding incidents and more powerful storms, are prompting examinations of the cost of living near the water.
In some communities in Florida, higher flood risks have led to higher insurance and lower sales prices. That hasn’t happened here, but there is growing support to charge homeowners premiums that cover costs of the program.
“The program was solvent until Katrina. That’s what put it under,” said Edward J. Mahaney Jr. of Mahaney Consulting in Cape May. “The chance to get back was wiped out by Sandy.”
Scientists say sea-level rise and a warming ocean have made storms and floods more damaging.
Mahaney, a former Cape May mayor, was until recently the strategic planner for the New Jersey Coastal Coalition, a group of towns working together to create more flood-resistant communities through preparation, innovation and education. The group touts the benefits of its work as lower insurance costs for towns and property owners.
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The NFIP is in the red, even though Congress forgave $16 billion of debt last year. That debt forgiveness came at a cost to taxpayers, who will have to cover the deficit.
Lawmakers in favor of increasing premiums, including those who supported a five-year reauthorization bill last November called the 21st Century Flood Reform Act in the House, say people should know the true cost of living so close to the water. Keeping costs artificially low only encourages development in high-risk areas, they say.
U.S. Rep. Frank LoBiondo, R-2nd, however, opposed the act, saying it increased premiums too much, restricted help for owners of repetitive-loss properties and was bad for New Jersey homeowners who were still recovering from Hurricane Sandy in 2012.
That reform bill has not moved in the Senate.
More frequent flooding. Two hundred mph winds. Stronger hurricanes.
U.S. Sen. Robert Menendez, D-N.J., has a bill, S1368, to reauthorize the program that would save the program money by cutting administrative fees paid to private insurance companies, said Senior Policy Adviser Jason Tuber.
Currently they get $31 of every $100 premium dollars.
“The senator is confident there is not going to be a lapse, but he is not going to let an artificial deadline pressure us into accepting a bad deal for New Jersey,” said Tuber.
In New Jersey, 226,115 flood insurance policies were in force as of March, with $56.6 billion of insurance coverage, according to the Federal Emergency Management Agency. Premiums totaled $220.2 million, for an average premium cost of about $974 per year.
Should the NFIP lapse, which has never happened since its inception in 1968, FEMA would still pay valid claims. But it would stop selling and renewing policies, according to FEMA.
A notice on the FEMA website said a lapse could affect 40,000 home-sale closings per month nationwide.
Andrea Palermo’s life has taken on the ups and downs of the tides she follows on her phone app.
Properties with federally regulated or insured mortgages in flood-prone areas are required to have federal flood insurance, so sales may come to a standstill if the policies can’t be purchased.
Premiums on the 5 million policies nationwide are about half of what the private market would charge, and about a third of what it would charge in high-risk communities, according to a 2011 report by the Property Casualty Insurers Association of America.
That is partly because the NFIP does not factor into premiums the expected cost of wave damage from storm surges, says a report by the Congressional Budget Office. And partly because of subsidies.
The polar ice cap is melting, our ocean is expanding and New Jersey is sinking.
There have been some efforts to begin phasing out subsidies, required by a 2012 federal law called the Biggert-Waters Flood Insurance Reform Act. But a 2014 federal law called the Homeowner Flood Insurance Affordability Act rolled back some of those changes.
In April, the NFIP issued a record of decision, saying it would begin phasing out subsidies on some pre-Flood Insurance Rate Map properties by increasing premiums up to 25 percent per year, said Mahaney.
Pre-FIRM properties were those built before flood maps were available, which happened for most communities in the 1970s or 1980s. Due to be cut the most are subsidies for policies on second homes, businesses and repetitive-loss properties. NFIP will also phase out subsidies on primary residence pre-FIRM properties through annual increases of up to 18 percent, and create a monthly installment plan payment option.