Filed Under:Markets, Regulation/Legislation

NFIP May Need Additional Borrowing Authority Post-Sandy

The National Flood Insurance Program will likely need to go to Congress for additional borrowing authority to pay claims from Superstorm Sandy, insurance industry officials say.

Eli Lehrer, president of the R Street Institute in Washington, says calculations by his group and others indicate that the Federal Emergency Management Agency, which runs the NFIP, has only $1 billion on hand to pay claims.

Steve Ellis, vice president of Taxpayers for Common Sense, made the same prediction. The comments were made during a conference call convened by SmarterSafer.org, a group representing a diverse group of people with interests in disaster mitigation and conservation.

Officials at the news desk at FEMA say they will ask the agency’s top officials to comment on the issue to PC360 as soon as practicable.

During the call, those participating said the storm again shows the need for greater mitigation efforts to reduce storm damage through stronger building codes, the end of subsidies for buying flood insurance, and an end to support by the federal government that promotes building in areas prone to flooding.

At the same time, Lehrer, for one, rejects claims that climate change was one reason for the storm.

“Climate change impacts all weather, obviously,” he says.

But, Lehrer adds, “This type of event was easily foreseeable in all the insurance company models. It was not a particularly severe event; it just affected a place where a lot of people live.

“It is highly likely that the NFIP will run into a situation that will require having its borrowing limit increased," he adds.

He says this will likely happen before the end of the year; “during the lame duck session.”

Lehrer says and R Street analysis indicates that the NFIP owes the government $18 billion and currently has a $20 billion cap on borrowing.

Lehrer and others on the conference call also said it is likely that there may be calls in Congress to retroactively allow people who don’t have flood insurance to buy it.

He says there has been speculation that a number of people on Staten Island don’t have flood insurance. Lehrer agrees with that speculation, stating that “take-up rates on flood insurance are low.”

He says that if NFIP money runs out, there is the potential that the program will have to delay paying claims.

In his comments, Lehrer says, “Congress must stay the course on the reforms it has passed to NFIP.”

While an increase in the NFIP debt limit “is inevitable and should be granted,” Lehrer says, “Congress needs to draw a bright line that the program cannot forever prove a burden to taxpayers. It must accelerate its efforts to raise NFIP rates and transition the program to the private sector.”

He also says that "New Jersey will rebuild and, indeed, it must. So must the other damaged areas. But we can't—and shouldn’t—rebuild in just the same way or waste money doing it. Rebuilding the right way is more fiscally responsible and better for the environment.”

One of the issues brought up during the conference call is growing support for legislation being proposed by Sen. John Kerry, D-Mass., the Water Resource Development Act, which would require existing federal agencies to promote stronger flood-control provisions and uniform building codes that provide states incentives to better control development in flood-prone areas.

Under the law, states that adopt and enforce nationally recognized model building codes for residential and commercial structures would qualify for an additional 4 percent of funding available for post-disaster grants. The program would be administered by FEMA. 

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