The Heartland Institute is a member of the SmarterSafer.org coalition, a national coalition made up of a “diverse chorus of voices united in favor of environmentally responsible, fiscally sound approaches to natural catastrophe policy that promote public safety.” This group includes free market groups like The Heartland Institute, insurance companies including Liberty Mutual and environment groups like the National Wildlife Federation.
In response to a call for public comments on FEMA’s policy paper, “Rethinking the NFIP: Public Policy Options,” SmarterSafer.org sent a series of policy recommendations that would optimize and improve the existing flood program while removing incentives to develop in high risk, environmentally sensitive areas.
SmarterSafer.org made five major comments relating to the straw man proposals FEMA has made available:
- Optimization of the Existing Flood Insurance Program is Necessary; The Program Should Not Subsidize Development in High Risk Areas
- A Successful Program Optimization Agenda Should Improve, Improve the Community Rating System, Establish Risk-Based Rates, Create Income-Related Subsidies, Limit the Program’s Scope, and Incentivize Buyouts.
- Future Flood Control Strategies Should Emphasize the Natural and Beneficial Functions of Floodplains and Wetlands Rather than Continued Investment in Structural Mitigation.
- Federal Response to Flooding Should be Consistent with Federal Policies in Other Realms.
- Community-Based Alternatives Need Further Study and Optimization of the Current Program is a Prerequisite to Implementing Any of Them.
The full letter is reprinted below.
To:
Sandra K. Knight, PhD, PE, D.,WRE
Deputy Federal Insurance and Mitigation Administrator, Mitigation
U.S. Department of Homeland Security
Federal Emergency Management Agency
Mike Grimm, CFM
NFIP Reform Program Manager
Deputy Director Risk Reduction Division
Mitigation Directorate, FEMA
VIA ELECTRONIC MAIL
From: SmarterSafer.org
RE: Rethinking the NFIP
February 14, 2011
SmarterSafer.org, a coalition of environmental, taxpayer, free market and insurance groups is grateful for the opportunity to submit comments on “Rethinking the NFIP: Public Policy Options.” As a coalition, we are devoted to risk-based insurance rates, environmental protection, and mitigation through property protection. Many of our coalition members will submit or have already submitted comments that address in depth many of the issues critical to their organization’s missions. The comments of SmarterSafer.org address the shared positions of our diverse membership.
We are committed to the idea of flood insurance and all of us are convinced that the current NFIP has numerous flaws and needs significant change. In the 20th century, floods caused more property damage and fatalities in the U.S. than any other type of natural disaster. In that vein, we wish to make five major comments relating to the straw man proposals FEMA has made available:
- Optimization of the Existing Flood Insurance Program is Necessary; The Program Should Not Subsidize Development in High Risk Areas
- A Successful Program Optimization Agenda Should Improve, Improve the Community Rating System, Establish Risk-Based Rates, Create Income-Related Subsidies, Limit the Program’s Scope, and Incentivize Buyouts.
- Future Flood Control Strategies Should Emphasize the Natural and Beneficial Functions of Floodplains and Wetlands Rather than Continued Investment in Structural Mitigation.
- Federal Response to Flooding Should be Consistent with Federal Policies in Other Realms.
- Community-Based Alternatives Need Further Study and Optimization of the Current Program is a Prerequisite to Implementing Any of Them.
Our specific comments follow:
Optimization of the Existing Flood Insurance Program is Necessary; The Program Should Not Subsidize Development in High Risk Areas
Insurance serves a valuable social function. The fact that flood insurance is difficult to provide does not mean that the nation should give up on providing it. However, the federal government cannot continue to provide flood insurance in the way it has traditionally. The NFIP’s more than $18 billion treasury debt, its failure to reduce flood-related damage and protect people and communities from harm, and its inability to promote mitigation in an effective manner mean that the program must change. In this context, any effort to expand NFIP—by including wind coverage or other multi-peril coverage—is not prudent or advisable.
Efforts to optimize NFIP should strive to remove any tendency within the program to subsidize development in high-risk areas. In general, any reform plan should make NFIP insurance a significant deterrent to additional development in any area that is particularly flood prone. Federal policies should encourage, rather than inhibit, efforts by local governments to discourage development subsidies and supports in particularly flood prone areas.
A Successful Program Optimization Agenda Should Improve, Improve the Community Rating System, Establish Risk-Based Rates, Create Income-Related Subsidies, Limit the Program’s Scope, and Incentivize Buyouts.
The existing flood insurance program can and should be improved significantly. Five major improvements should be made:
Improved Mapping: Flood maps need to be modern, accurate, and based on the best available science. NFIP must have accurate maps that reflect true risks.; FEMA needs to embark on an ongoing effort to improve the maps. Ideally, FEMA should adopt an iterative, open-ended map modernization process that emphasizes continual improvement of the quality and usefulness of the maps. An ideal process should be characterized by mechanisms that allow for continual improvement of mapping and immediate incorporation of the certain details omitted from the current maps. Three things are necessary to improve maps:
Continual Improvement: FEMA should not—and cannot—let its maps stand still. The RiskMap process, although laudable in its stated goals, needs improvement. To improve the maps, we believe that FEMA should create a Technical Mapping Advisory Protocol Council with a balance of state, local, private and public members. The council, through public consultation, would provide ongoing advice and guidance on the ways that maps can be improved.
Inclusions of Details Currently Excluded: Current flood risk maps do not include necessary information about; wetlands, groundwater recharge areas, erosion zones, meander belts, endangered species habitat, barrier islands and shoreline buffer features, riparian forests, existing levees not certified as protecting against 100 year floods, and important fish/wildlife habitats. Insofar as these things impact the risk of flooding, they ought to be included and taken into account in developing flood maps.
An Improved Community Rating System: The current community rating system, although created with good intentions, has not lived up to its potential for creating flood-safe communities. Some aspects of the current CRS, such as its decision to count parking lots, roads, and other impermeable surfaces as “open space” may actually retard flood protection efforts. An improved CRS should use the best available science relating to climactic trends, wildlife habitat, and the beneficial functions of floodplains in order to establish the best possible framework for promoting flood safe-flood resistant practices. Like maps, the Community Rating System should be regularly and periodically reviewed and updated.
Establishment of Risk-Based Rates: Rates within NFIP must reflect actual risk. Over a period of years, NFIP should eliminate any implicit or explicit location-based or building-age-based subsidy within the program. A catastrophe risk-load must be included as a factor in determining these rates. NFIP should, as a whole, charge rates high enough to meet the adequacy standards established by state insurance regulators that, themselves, meet NAIC standards for accreditation. Rates for vulnerable middle and low income communities should be phased in over time to ensure that these property owners and communities are not unfairly burdened.
Limits to Scope: Insofar as government provides flood coverage, it should not have obligation to do so in every case for every individual. People who can afford second homes should also be able to purchase flood coverage on their own; only primary residences should be covered through the program.
Creation of Income Related Subsidies for Premium Payment and Mitigation: To address the practical difficulties of moving all rates to actuarial levels, FEMA should design a subsidy program to assist individuals who would otherwise have difficulty paying the risk-based flood Insurance rates. Such subsidies should, in all cases, be income-related: they would be available to those who have home values and incomes below the median in their counties. FEMA and Congress should explore a variety of options relating to subsidy programs including tax credits and individual vouchers similar to those issued under Section 8 programs. Subsidy programs should both provide assistance for the payment of flood insurance rates and assistance with mitigation measures intended to secure homes against flood damage.
Improvements to Buyout Efforts: Severe repetitive loss properties impose enormous costs on the NFIP. FEMA should develop a process to facilitate buyouts and ensure repetitive loss properties loss properties do not continue to receive insurance after a certain point.
Future Flood Control Strategies Should Emphasize the Natural and Beneficial Functions of Floodplains and Wetlands as well as Increased Investments in Property Protection in the Context of a Balanced Approach that Includes a Limited Amount of Structural Mitigation.
Currently, FEMA policies promote the construction of levees, which results in destruction of floodplain functions while exposing communities to flood risk. FEMA must change its policy to rely first on environmentally and sound natural functions of floodplains to protect communities from floods and only use levees as a last resort. Although repairs to current levees and flood control mechanisms may need to be made based on the community circumstance, the nation must make a greater effort to first and foremost get people out of harm’s way thus reducing the flood risk. FEMA must avoid subsidizing or supporting any development in high risk areas. FEMA should allow mitigation grant funds to remove (and not subsequently reconstruct) hazardous dams and levees as part of the disaster mitigation process. Projects that reduce flood risk by protecting natural resources should be rewarded with grants and other assistance. The federal government should also act to encourage public and private investment in property protection measures that strengthen homes, businesses, and public infrastructure against nature’s worst.
Federal Response to Flooding Should be Consistent with Federal Policies in Other Realms
Members of our coalition agree that the NFIP should not be used to violate the letter or spirit of other federal laws or policies.
Community-Based Alternatives Need Further Study and Optimization of the Current Program is a Prerequisite to Implementing Any of Them.
FEMA’s Straw Man Proposals for Community-Based Flood Insurance Options offer interesting and promising options for modifying the NFIP. Implementing any community-based option (or, indeed, any practical insurance-based option other than the current program), however, will require efforts that improve current maps, buyout the worst repetitive loss properties within NFIP, and establish risk-based rates. As such, whatever the merits of municipal-level insurance, cap and trade, and watershed-based insurance, we do not believe it is practical to implement such efforts until the existing program is improved significantly.
Conclusions
The Straw Man options that FEMA has presented point a way forward for NFIP and offer the possibility of a better-run program. The review process points to the possibility and, indeed, the necessity of change. NFIP has problems but we believe they have solutions.
Respectfully Submitted,
Smartersafer.org
Members and Supporters of Smartersafer.org
Emergency Preparedness and Building Groups
International Code Council
National Fire Protection Association
Plan!t Now
Insurer Interests
Allianz of America
Association of Bermuda Insurers and Reinsurers
Chubb
Liberty Mutual Group
National Association of Mutual Insurance Companies (NAMIC)
National Flood Determination Association
Reinsurance Association of America
SwissRe
USAA
Zurich
Environmental Activists
American Rivers
Ceres
Defenders of Wildlife
Environmental Defense Fund
Friends of the Earth
National Wildlife Federation
The Nature Conservancy
Republicans for Environmental Protection
Sierra Club
Consumer, Free Market and Taxpayer Groups
American Conservative Union
Americans for Prosperity
American Consumer Institute
Americans for Tax Reform
FreedomWorks
Taxpayers for Common Sense
The Heartland Institute Center for Finance, Insurance and Real Estate
On these comments, please Contact Eli Lehrer at the Heartland Institute:
Eli LehrerVice President
The Heartland Institute
1728 Connecticut Ave. N.W.
Suite 2B
Washington, D.C. 20009
(202)525-5717 –
