FEMA Reps Bracing for Consumer Backlash When NFIP Actuarial Rates Phased In

Federal Emergency Management Agency officials are girding for sticker-shock outrage from consumers as they prepare to implement across-the-board rate increases in the flood-insurance program.

The law imposing the increases in January is the Biggert-Waters Act, and was enacted by Congress in July.

It would phase in actuarial rates over four years; and institute a five-year phase-in of higher rates imposed through mapping changes. The changes go into effect starting Jan. 1.

“We are expecting acute consternation,” said an unidentified aide to David Miller, FEMA associate administrator for federal insurance and mitigation.

Miller made his comments at the Government Relations Task Force meeting held in conjunction with the NAIC’s fall national meeting Saturday at National Harbor, Md.

Miller was cagey in discussing when and if the administration will seek an increase in the borrowing authority for the program, the National Flood Insurance Program.

It is expected that officials will seek an increase from the current $20.775 billion to $30 billion. That increase in borrowing authority is expected to be tucked into legislation that resolves the “fiscal cliff” crisis that is now the subject of intense negotiation between the Obama and administration and Congress.

It is expected that some sort of deal will be completed by mid-December.

Miller would only say that Congress, the White House and the Office of Management and Budget are being updated daily on the “burn rate” of the estimated $2.95 billion FEMA had on hand to pay claims when Superstorm Sandy hit.

“I won’t conjecture on what or if the administration will ask for an increase in the borrowing cap,” he said.

In a statement made Sunday at the Property and Casualty Insurance Committee meeting held as part of the event, David Snyder, a vice president of the Property Casualty Insurers Association of America, said, "Because so many people are relying on NFIP, it is particularly critical that it be financially strong.”

Snyder also said, “To the extent practicable, NFIP's rates should also accurately reflect risk so as to provide financial signals that could help reduce future losses."

No NAIC official would comment on the critical cap issue during the meeting.

Miller said that dealing with Sandy has taught the agency many lessons. One of the dilemmas it is facing is advising homeowners rebuilding after Sandy what level of elevation FEMA might require for built-up properties going forward, based on the storm.

Snyder also made comments from the perspective of industry on the lessons learned from Sandy.

“Sandy, Katrina and other catastrophes have exposed fatal flaws and critical vulnerabilities in this nation's risk-management system,” he said.

Citing a Framework for Disaster Risk Management approved by the G-20 last month, Snyder said, “Consumers, regulators and insurers need predictability.”

He noted, “Major progress on fundamental insurance issues requires the natural-catastrophe risk to become more insurable through strengthening the other links in the disaster risk-management chain. By analogy, auto insurance would not be as affordable and available as it is if we were killing and injuring people at the rate we were in 1960.”

Among other issues discussed at the meeting, Miller acknowledged that, “Climate change is clearly a big issue.”

However, he said, “The questions we are confronting as we try to deal with it is, how do we quantify it, and how will it affect pricing and mapping in specific risk areas?” 

He said the agency is getting to work dealing with the studies and program changes mandated by Biggert-Waters, and is happy that some certainty has been introduced into the program with passage of the five-year extension.

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