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Federal flood insurance program in limbo on Capitol Hill as Harvey’s toll mounts

A home is surrounded by floodwaters from Tropical Storm Harvey on Monday in Spring, Tex. Experts say far too few homeowners have flood insurance. (David J. Phillip/AP)

The devastation Hurricane Harvey has wrought in southeastern Texas has brought new focus to the National Flood Insurance Program — and to a pending Republican effort to restructure and partially privatize an industry that has been effectively subsidized with tens of billions of federal taxpayer dollars.

The program is set to expire Sept. 30, and no new policies can be written after that date unless Congress acts to extend it. Claims on existing policies, which can see payouts up to $350,000, are also at risk as the program approaches a $30 billion borrowing limit that experts say Harvey’s toll could quickly breach.

All but a tiny portion of U.S. flood policies are underwritten by the National Flood Insurance Program, or NFIP, which was established in 1968 after private insurers left the flood insurance market because of large and unpredictable losses.

The country’s flood insurance program is sinking. Rescuing it won’t be easy.

Even before stormwaters swept across metropolitan Houston, debate on how to restructure the NFIP exposed fissures in Congress that crossed traditional partisan lines, pitting conservatives who want to scale back the government costs for the program against lawmakers from flood-prone regions wary of jacking up their constituents’ premiums.

Flooding in Texas continues in wake of Hurricane Harvey

epa06168742 Mindy Walker and her three year old son Connor Martinez are helped out of a boat after being rescued from their home along Cypress Creek at Kuykendal 15 miles northwest of downtown Houston, Texas, USA, 28 August 2017. The areas in and around Houston and south Texas are experiencing record floods after more than 24 inches of rain after Harvey made landfall in the south coast of Texas as a category 4 hurricane, the most powerful to affect the US since 2004. Harvey has weakened and been downgraded to a tropical storm and is expected to cause heavy rain for several days. EPA/MICHAEL WYKE (Michael Wyke)

“We need a sustainable program, and today we don’t have it,” House Financial Services Committee Chairman Jeb Hensarling (R-Tex.), a staunch conservative who has pushed for privatization and other changes to provide for a self-sufficient program, said Tuesday. “I’ve been telling people for four years that we are one major storm away from another taxpayer bailout, and that day has come. So if anything, it creates more momentum and a greater onus on getting our bill into law.”

The effort has had backing from the Trump administration, whose budget proposed eliminating the NFIP's Flood Hazard Mapping Program, saving $190 million in fiscal 2018, as well as another $8.9 billion in other savings over the coming decade achieved in part by "encouraging private competition in the flood insurance market."

But Hensarling's plan to extend the program, which passed his committee in June, has yet to come to the House floor amid frustration from Republican leaders who wanted the committee to draft a more broadly palatable NFIP extension that could pass quickly on a bipartisan basis. Notably skeptical of Hensarling's efforts is House Majority Whip Steve Scalise (R-La.), who represents a hurricane-prone district and has closely monitored the debate as he recovers from a serious gunshot wound he suffered in June.

Want to be mad about government insurance? Be mad about the program that will be critical after Harvey.

“Are we really going to have a philosophical debate about what role the federal government should play in flood insurance when people’s homes are underwater?” said a House Republican leadership aide who spoke on the condition of anonymity to candidly describe internal discussions. “It’s just an absolute political loser at this point.”

The leaders of the Senate Banking Committee last month proposed a bipartisan bill that would extend the program through 2023 but does not include the most controversial provisions in the House bill. That bill has yet to emerge from the panel, although it could serve as a blueprint for a compromise.

The debate over the future of the NFIP stands apart from the larger question of how Congress will offer relief to Harvey's victims, most of whom do not have flood insurance coverage. That price tag could rise into the tens of billions of dollars beyond insurance payouts, based on the costs of similar recent storms and early estimates from the financial industry.

Volunteers continued to brave the rain to rescue residents trapped in their homes. (Video: Dalton Bennett, Whitney Shefte/The Washington Post)

But Harvey is certain to affect the flood insurance debate, as well. “Forgive the pun, but it certainly roils the water, that’s for sure,” said Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan group that advocates changes to the NFIP.

The program owes more than $24 billion to the U.S. treasury, and most observers see little hope that the debt can be recovered from policyholders. Neither the House nor Senate reauthorization bills propose raising the program’s borrowing cap, so another congressional battle could develop after Harvey claims start to be paid out.

Restructuring advocates say the hurricane represents a crisis that should not go to waste. “Storms like Harvey help concentrate the mind that this is a program that is broken, and the response to a broken program is not simply to continue and expect a different outcome,” Ellis said.

Where Harvey is hitting hardest, 80 percent lack flood insurance

It’s the nature of those changes that is at issue. Hensarling said that wider privatization would mean lower premiums for homeowners, but lawmakers of both parties fear that his proposals would lead to unsustainable premium increases. Democrats oppose provisions that they think will lead private insurers to cherry-pick the least-risky properties, leaving the government on the hook for huge potential losses on the remainder.

Other criticisms tend to cross lines of party or ideology. Conservatives and liberals alike question whether taxpayers ought to subsidize some coastal dwellings — often vacation homes on shore property — that have been repeatedly inundated over the course of decades.

“Let’s ask some tough questions: Should we subsidize houses that are built in flood zones?” said Michael A. Brown, who served as administrator of the Federal Emergency Management Agency under President George W. Bush — and was ousted in the wake of Hurricane Katrina in 2005.

W. Craig Fugate, who served as FEMA director under President Barack Obama, said that although any changes to the NFIP shouldn’t affect current policyholders, “we ought to stop growing it.”

Harvey has shaken up the debate. Many of the inundated homes in the Houston area aren’t located on fragile coastlines, but in suburban subdivisions that are outside the floodplains where home lenders typically require flood insurance coverage.

“I suppose one might think of abandoning Houston, Texas, and just leaving it for other forms of life, but that’s not realistic,” said Rep. Al Green (D-Tex.), who represents parts of southern Houston, serves on the Financial Services Committee and thinks that Congress should forgive the program’s debt.

“At some point, we have to realize that this is a United States of America and in the spirit of unity, we will have to absorb that debt,” he added. “This is not money that is being thrown away; it’s going to benefit the health and welfare of our citizens.

Carolyn Kousky of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, who has studied the NFIP, said fundamental tensions between those who want to keep premiums artificially low and those who want a self-sustaining, actuarially sound program are just some of the obstacles to changing it.

“There’s a real split between those who would like to see the NFIP contract as much as possible and those who would like to expand it, and I’m not sure that Harvey will bridge those differences,” she said.

That certainly appears to be true in the House. Rep. Maxine Waters (D-Calif.), the top Democrat on the Financial Services Committee, called for a bipartisan NFIP reauthorization in a statement this week and said that Harvey “again makes clear that Americans need access to affordable flood insurance.”

But Hensarling made clear Tuesday that he has no intention of settling. “To the best of my knowledge,” he said, “the speaker or the [House majority] leader does not wish to have Maxine Waters and the Democratic minority write this bill.”

Ed O’Keefe contributed to this report.

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