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Demystifying Flood Insurance: Q&A with US Senator Bill Cassidy

Thousands of Americans in the Midwest and California are already feeling the effects of flooding this Spring. Many of these families didn't have flood insurance, and will face major financial challenges as they try to rebuild. We decided to reach out to long-time advocate for the National Flood Insurance Program (NFIP), U.S. Senator Bill Cassidy to get some answers about flood insurance.

Why is having flood insurance critical for families being able to recover after a flood?

Flood insurance is the only guarantee that you will be compensated for a flood loss. Not every storm and flood event results in a federal disaster declaration. For example, FEMA did not issue a federal disaster declaration in Louisiana for individual assistance after Hurricane Harvey and there was no Community Development Block Grant for Disaster Recovery made available. The SBA did declare a disaster for Louisiana related to Hurricane Harvey which made Disaster Assistance Loans available.

Is flood insurance only needed by those who live on the coast?

Everyone should have flood insurance. Through 2017, more than 20 percent of all NFIP claims were filed by people outside of high-risk flood zones. These claims have received one-third of federal disaster assistance for flooding.

Eighty percent of Houston structures damaged by Hurricane Harvey were not in a high-risk flood zone.

How affordable is flood insurance?

Flood insurance for homes at or above the base flood elevation can be quite affordable. For instance, a home with no previous claims that is outside of the Special Flood Hazard Area can get the maximum coverage under a Preferred Risk Policy for $450 a year.

Homeowners should understand that the maximum coverage is $200,000 for the structure and $100,000 for the contents. Homeowners should take an active role in reviewing their coverage and selecting their policy. Many homeowners learn only after a flood that the flood insurance obtained by their mortgage company only covers the remaining balance on their mortgage and has no contents coverage. Also, your policy only covers your home and not other buildings on your property.

Flood insurance rates are based on the difference between the lowest floor elevation of a home and the base flood elevation. To get the best rates, homeowners should provide their insurance agent with an elevation certificate. Homeowners can hire an engineer or surveyor, or they may find an elevation certificate on file in the local permitting or floodplain management office.

As long as you live in your home and your structure coverage is at least 80% of the full replacement cost at the time of the loss, or the maximum coverage, the policy will pay replacement costs. Otherwise, the policy will pay actual cost which includes a deduction for depreciation.

SBP recommends that you reach out to your insurance agent to learn more about your flood insurance options. You might be surprised to learn how affordable it can be.

What should households do to help ensure they get a full, timely insurance claim payout in the event of a flood?

Homeowners should insure for the full replacement cost of their home. This will avoid depreciation on their structural claim.

Immediately after a flood, homeowners should call their agent and make a claim. It is best to wait for an adjuster before touching any damage. This will avoid any disputes over whether or not an item is salvageable, can be repaired, or needs to be replaced. It also avoids lengthy disputes as to the items value based on its preexisting condition and age.

If the homeowner has to begin repairs prior to an inspection, they should record videos and take pictures that document the damage. It is important to get pictures at several locations inside and outside that clearly show the water line and the corresponding measurements on a tape measure. Do not rip out sheetrock more than 2 feet above the waterline. Do not throw anything away if possible. Some items such as clothing, furniture, toilets, tubs, and sinks are often considered salvageable after cleaning or repair. If you have to throw something away, take plenty of pictures. When possible, record the model number and year it was manufactured.

Homeowners should also review the exclusions in the standard policy. Many homeowners significantly delay a final settlement by demanding items that their policy does not cover, such as foundation repairs or code mandated upgrades to electrical systems. Cabinets can be another source of lengthy disputes. Flood insurance will only cover the cabinets that come in direct contact with the flood water. The policy does not cover replacement of undamaged upper cabinets to match replacement lower cabinets.

What kinds of changes to do you want to see to make the National Flood Insurance Program stronger?

The National Flood Insurance Program (NFIP) is critical to our states and there is a bipartisan path to expedite a long-term reauthorization of the NFIP with commonsense reforms that enhance the affordability, efficiency, fairness, accountability, and sustainability of the program. Structural reforms to the program must address the affordability of flood insurance premiums for low and middle-income policyholders, fund flood mitigation efforts, improve flood risk mapping, reform the claims process and forgive the NFIP’s existing and unsustainable debt burden. We must address these outstanding issues as part of a long-term NFIP reauthorization legislation and we stand ready to work with you to resolve them.

Specifically, I urge the following:

1. Any attempt to facilitate the expansion of private sector flood insurance policies must not adversely affect the NFIP or its policyholders. Any private flood insurance expansion proposal must be coupled with guardrails that encourage diverse risk pools and prevent cherry-picking of the lowest-risk policies, which would turn the NFIP into an underfunded high-risk pool, causing premiums to skyrocket and further threaten the solvency of the program. The NFIP is the only option for many of our constituents who live along the coast or in high-risk flood zones. The reauthorization plan should also include consumer protection to ensure homeowners are not exposed to insurance companies with inadequate capital reserves, private policies with unreasonably high deductibles or coverage exclusions. Additionally, the Senate should ensure that private insurance policies are charged the same federal policy fees[1] as NFIP policyholders for mapping and floodplain management protection, which provide benefits for all flood insurance market participants—both public and private. Permitting private insurers to evade paying their fair share will shift even more of the financial burden onto taxpayers and NFIP policyholders. This would make our communities less resilient to future flooding.

2. Affordability for low and middle-income policyholders and funding for mitigation. We cannot allow premiums to skyrocket for low and middle-income homeowners and renters. Runaway premium increases are already forcing people out of their homes, depressing home values, and leading more families to drop their flood insurance altogether. Rather than make the program more solvent and accountable to taxpayers, unaffordable premiums threaten to undermine the NFIP and expose taxpayers to additional federal disaster assistance grants. In addition to a means-tested affordability program for low-income households, increasing the federal investment in mitigation projects and providing higher caps for the Increased Cost of Compliance program will help all policyholders lower their premium rates and reduce the collective exposure to flood-related losses.

3. Improve FEMA’s mapping program to use the most up to date science and technology. This includes the efforts to facilitate and leverage current high-resolution topographic data (e.g., Light Detection and Ranging [LiDAR] data, or other new and emerging technologies) in the development of flood insurance rate maps.

4. Reform the NFIP “Write Your Own” program and claims process to address lessons learned from Superstorm Sandy, the 2016 flooding in Louisiana, and other disasters. The Senate bill should reform the claims and appeals process to protect policyholders from fraud and other unethical practices by some insurance companies and their contractors. Policyholders have paid premiums for years, many even for decades. They deserve to be treated fairly and have their claims processed quickly so they can recover and get back in their home as soon as possible.

5. Forgive all of the NFIP’s existing debt. I appreciate that Congress included $16 billion in debt-forgiveness for the NFIP in last year’s disaster supplemental legislation. However, that did not cover the nearly $25 billion in debt that existed prior to the 2017 hurricanes, of which $10 to $13 billion[2] was brought by the failure of federal flood protection structures[3] after Hurricane Katrina. I believe Congress should fully forgive the NFIP’s debt to provide the program a clean slate moving forward. This will ensure that claims can be paid without the need to further increase already rising premiums on policyholders or limit funding for important mitigation and mapping projects.

Is there anything community members can do to help with the push for a stronger flood insurance program?

They can ask their local officials to participate in the Community Rating System (CRS). The CRS provides premium discounts up to 45% for jurisdictions that enact stricter floodplain management rules and activities. As a community adopts certain measures that reduce flood risk and improve safety, the community gains a 5% discount for every level of improvement it obtains. In addition to the discount, these measures help reduce future flooding and improve the community’s ability to respond and recover after future disasters.

Homeowners can also ask their local officials to participate in FEMA’s mitigation programs. These programs allow local communities to buy out homes, elevate homes, or construct flood control projects that would prevent future flooding.

All of these programs will reduce future claims and hopefully result in a longer term stability to the NFIP fund. If this is achievable, then insurance premiums should stabilize.

In additional to flood insurance, what do you see as some of the most important ways communities and households can work to proactively reduce their flood risks?

Flood risks can be greatly reduced by taking a watershed approach to floodplain management and flood control projects. With greater coordination between local floodplain managers and public works officials, projects can be analyzed to determine their effect on the entire watershed and not the immediate area surrounding it.

In the Acadiana region, multiple parish leaders have come together to coordinate efforts in the Bayou Teche watershed with the goal of resolving their flood control problems while minimizing the harm to their neighbors. Not only does this approach help identify the best alternatives, it reduces the conflicts that often delay the implementation of flood control projects.

[1] FEMA, Flood Insurance Manual, Rating Section, Revised October 2017, p. RATE 16, at https://www.fema.gov/media-library-data/1503239106510-30b35cc754f462fe2c15d857519a71ec/05_rating_508_oct2017.pdf.

[2] IPET Technical Appendix; Volume VII - The Consequences, Page 22, Table 1-13; (May 2006).

[3] Interagency Performance Evaluation Task Force (IPET), Draft Final Investigation of the Performance of the New Orleans Flood Protection Systems in Hurricane Katrina on August 29, 2005 (Washington, DC: May 22, 2006).