A federal program that provides critical flood insurance is set to lapse unless renewed by the end of the month, potentially stranding new home buyers in need of coverage.
The National Flood Insurance Program provides a safety net for the increasing number of communities that are vulnerable to flooding and may not have access to any other coverage. Now lawmakers are deadlocked over extending the program, which is facing a backlash over a new pricing model intended to make premiums better reflect a home's risk.
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The Federal Emergency Management Agency is being sued by 10 states that want to block the program's updated pricing, which was intended to help address its decades-long funding shortfalls and to prevent homeowners in relatively low-risk areas from continuing to subsidize those in flood-prone areas.
The government Accountability Office said it will take several years to fully implement the new pricing and result in rate hikes for two-thirds of the program's 4.7 million policyholders. The states suing FEMA contend that the rates could drive people out of flood zones, slam property values and even lead to people losing their homes because they can no longer afford insurance that is a condition of their mortgages.
Average annual premiums will eventually double in 12 coastal and landlocked states under the revamp, according to a report by First Street Foundation, a research firm. The county with the steepest increase is Louisiana, where the average premium in Plaquemines Parish will increase more than sixfold to $5,431 from $842 in coming years, according to First Street.
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Jeff Landry, the attorney general for Louisiana, is leading the state's lawsuit.
Other states with average premiums over doubled include Florida and Mississippi, as well as Kentucky, South Dakota and West Virginia.
The premiums were formerly based on an outdated model that FEMA said no longer accurately reflected a home's risk of floods. Critics said the cheap insurance encouraged people to buy pricey homes in flood-prone areas, in part by repeatedly bailing them out.
In addition, more than 3,000 properties had 10 or more claims from 1978 through 2022, the agency said. Nearly two thirds of those were in five states: Louisiana, Texas, New Jersey, Missouri and New York.
To shore up its funding, FEMA asked Congress last year to consider allowing it to drop coverage on properties that received four or more claim payments of at least $10,000. Since the program caps rate increases at 18% a year, it will take until 2037 before the new premiums are charged for 95% of current policies, the GAO said. That delays the full impact of rate increases for several years for policyholders but leaves the program with $27 billion less in premium revenue than it otherwise would have.
The program's continued failure to charge sufficient rates for years has dug it deep into debt. It is paying $1.7 million in interest per day on $20.5 billion in loans, even after Congress forgave it $16 billion of debt in 2017 to the government.
The program has lost almost a million policyholders since 2009, despite floods becoming more frequent and costly. In the areas affected by Hurricane Idalia last month, fewer than one in five homes on average had federal flood insurance, according to an analysis for the Wall Street Journal by private insurer Neptune Flood.
A failure by Congress to renew the program would not stop claims from being paid. The Insurance Information Institute, an industry group, said it could affect home purchases in high-risk flood zones and derail thousands of closings in the peak of hurricane season.
FEMA has had the program to lapse in the last six years, allowing lawmakers to lapse briefly three times over the past six years.
It isn't clear how lawmakers will extend the program. If a temporary funding law is passed, a renewal could be included as a safeguard for the government in its current financial state.
Sen. Kennedy of Louisiana is also expected to try to pass his extension bill next month.
His attempt was blocked last week by Sen. Mike Lee, who said he was not willing to accept 'yet another hollow promise' of reforms.