Update Flood Plain Maps, Senate Panel Told

Washington--Besides financial restructuring, reform of the National Flood Insurance Program must include updating flood plain maps used to set premium rates and home purchase requirements, witnesses told the Senate Banking committee today.

With the program effectively bankrupted in the wake of Hurricanes Katrina, Rita and Wilma, representatives of the mortgage industry, the home building industry, and taxpayer and consumer advocates noted that mapping out current and accurate flood plain maps is vital to establishing a strong financial base for the program going forward.

The message echoed the sentiments of committee members and the comments of the administrator of the NFIP at a hearing last week.

"These maps are critically important because they are used to determine the proper flood elevation for accurate height measurements for new construction, and because they are used to determine the rate structure for the program," said Sen. Richard Shelby, R-Ala., the chairman of the committee. "Without updating the flood insurance rate maps, it will be impossible to create an actuarially sound program."

Among the major elements necessary for reform, the witnesses said, is elimination of subsidized premiums being paid by homeowners whose properties predate the flood insurance rate maps, thus increasing the number of homeowners paying actuarially sound rates for flood coverage.

"NFIP has been in effect for nearly 40 years. That is far longer than even the longest mortgage," said Paul J. Gessing, director of government affairs for the National Taxpayers Union. "Surely, it is time to stop paying massive subsidies to the shrinking group of unaware pre-FIRM [Flood Insurance Rate Map] homeowners."

There was some opposition to this proposal, however, with some witnesses noting that those most likely to be affected by ending the subsidy are lower income consumers.

"Under a true actuarial scheme, many homeowners and commercial property owners who are unable to raise their properties to the base flood elevation could find it financially impossible to retain or repair their structures," said Regina Lowrie, chairman of the Mortgage Bankers Association.

A potential compromise considered at the hearing would be to only remove the subsidy initially for properties that are not the owners' primary dwelling, typically second homes or vacation rental properties.

J. Robert Hunter, director of insurance for the Consumer Federation of America, offered an additional compromise that would allow for low income consumers to make mitigating changes to their properties and adjust to increased flood insurance premiums through direct aid, which he said is necessary to ensure the program doesn't simply allow for rebuilding that will only be washed away again in the next flood.

"It is not doing lower income residents in high-risk areas any favors to let them build the same way as before Katrina," Mr. Hunter said. "This is just setting them up for destruction by the next flood."

More importantly, Mr. Hunter called on lawmakers to work toward updating and improving flood plain maps, many of which were proved inaccurate by Katrina.

"Taxpayers are subsidizing unwise construction as a result of these bad maps," Mr. Hunter said. "Further, large areas that appeared to be outside of the special flood hazard area should actually be in the high hazard area.

"People who should have been warned their homes were in high-risk areas were not warned, and many of these people who had mortgage commitments over the past two decades or more would have been required to purchase insurance had the maps been up to date."

As an example, Mr. Hunter noted a flood plain map in Hancock County, Miss. The flood plain map in use before Katrina required an elevation of 9-to-11 feet above sea level. The actual risk is at 18-to-27 feet, Mr. Hunter noted, and Katrina-related flooding reached levels of 19-to-24 feet. "These old maps are a tragedy for the nation," he said. "People all over the country are building what they think are safe homes but, to varying degrees, are not. They are in peril."

After the hearing the Independent Insurance Agents & Brokers of America said it was pleased to note Sen.. Shelby and Sen. Paul Sarbanes, D-Md. appeared to favor increasing NFIP borrowing authority separate from other reforms.

IIABA is pushing a flood reform package with 22 recommendations, including a call for optional business interruption coverage on commercial policies, increases in the maximum coverage limits and the inclusion of additional living expenses coverage for residential policies.