Depleted FEMA funds, old maps are concerns
June 1 marked the start of hurricane season, and experts predict several major storms in the coming months.
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The problem for Rhode Islanders and others who could be facing big expenses if a hurricane hits: The federal flood insurance program is broke.
The Federal Emergency Management Agency’s National Flood Insurance Program, the state’s and country’s primary source of coverage for properties in flood-prone areas, has been taking loans from the U.S. Treasury since its reserves dried up last year after hurricanes Katrina, Rita and Wilma wreaked havoc along the Gulf Coast.
Legislation was recently introduced in the U.S. Senate to right the federal flood program, however, with Rhode Island’s Sen. Jack Reed as one of the bill’s main supporters.
“We have to make sure that we have a strong and financially sound [federal flood insurance] fund because we are likely to be hit sometime with a hurricane,” said Reed, a Democrat, in a June 2 interview. “People need to be confident that their hurricane insurance will be there and it will be fully funded.”
Reed is a member of the Senate Committee on Banking, Housing and Urban Affairs, which approved the legislation last month. The bill calls for updating the maps that FEMA uses to assess flood risks and eliminating subsidies to some policyholders.
The agency’s outdated maps, for example, don’t account for the risk of levee breaks in places such as Louisiana. The oversight cost the federal flood program billions when the levees did in fact break during Hurricane Katrina.
The flood maps used to assess risk in Rhode Island are more than 20 years old and, like most others in the country, lack data on how new development has changed watersheds and floodplains, according to Reed’s office.
The new bill would provide $400 million a year through 2012 for FEMA to revamp its maps.
As far as flood insurance rates are concerned, the federal program has been subsidizing premiums for decades, keeping costs at less than $1,000 per year for most policyholders.
The bill would nix subsidies for federal flood insurance on second homes and properties that have been repeatedly flooded. That rate change would affect about 2,700 policies in the Ocean State, Reed said. The bill would also lift the 10-percent cap on annual rate increases to 15 percent on all policies, helping FEMA to rebuild its reserves.
The rate increases would be the same for policyholders in every state, Reed said, in response to a question about concerns that the damage in the Gulf Coast would require people in other areas of the country to share the expense.
Reed said he expects Congress to adopt the bill by September. Meanwhile, FEMA would have to continue to borrow from the Treasury to pay claims on its policies. (The bill would also forgive the some $23 billion loaned to the federal program after the Gulf Coast hurricanes.)
Still, the danger in Rhode Island lies in the fact that fewer than 3 percent of the 480,000 structures in the state, about 12,500, have federal flood insurance – yet many more are in areas where flooding could and has occurred, according to Pam Pogue, state floodplain program manager for the R.I. Emergency Management Agency.
“[It] is really pretty pitiful when you think about the amount of land and so forth that is susceptible to flooding,” Pogue said. “So I think that we are just way, way overexposed and not covered.”
Until floodplain maps are updated, she said, it’s unclear how many homes would fall within the so-called special flood hazard areas in which the insurance is required. Yet the policies are already available for properties within the 500-year floodplain, at a reduced cost of $122 to $300 per year, she estimated.
However, those outside the current flood zones generally don’t buy flood insurance.
About 50 percent of the properties devastated by Hurricane Katrina lacked flood insurance, meaning that some victims were left without a home or money to rebuild, according to the Association of State Floodplain Managers, a Wisconsin-based group that Pogue chairs.
Scientists also say that the Northeast is overdue for a big one, especially since a cycle of warmer seas in the Atlantic that could intensify storms began in 1995.
Peter Troy, of Troy, Pires and Allen insurance brokerage in East Providence, said that
increased attention to flood risks could bode well for businesses such as his.
Troy noted that the redevelopment of historic buildings in parts of Providence and along rivers such as the Blackstone and the Seekonk has created new liabilities in need of coverage. He estimated that his firm sold 400 flood insurance policies in the past year, many of them to owners of new condos housed in former industrial buildings.
“Certainly remapping, especially for the urban areas, could create quite a few sales opportunities,” Troy said.
