Congress Should Maintain the Best Features of the Biggert-Waters Flood Insurance Reform Act
March 06, 2014
Earlier this week, the House of Representatives passed a bill which caps the maximum flood insurance premium at a level that still leaves American taxpayers exposed to losses on properties that experience a higher than average risk of flooding. Faculty Affiliates Erwann Michel-Kerjan and Howard Kunreuther, who are speaking in Washington, DC tomorrow on this very topic, have penned an op-ed for The Hill in which they “urge Congress to consider the large body of evidence-based research on the overall performance of the NFIP [National Flood Insurance Program] with respect to the nature of the flood risk in the U.S., the role of mitigation, insurance coverage in place and claims payments before taking any final action to undo BW12 [the Biggert-Waters Act of 2012].” Before the Senate votes on this bill (HR 3370), Professors Kunreuther and Michel-Kerjan urge the Senate to consider these evidence-based recommendations:
- Delete the 1 percent cap provision on annual flood insurance premiums
- Target enforcement of the flood insurance requirement on federally-insured mortgages
- Require anyone in a flood plain to purchase basic insurance coverage, which is likely to be relatively inexpensive
- Specify rate increases of 10-18 percent per year so there is a longer glide path to risk-based premiums for many Americans than under BW12 and it takes 10 years or less to move to risk-based premiums.
- Address the affordability issue by providing government insurance vouchers based on income level (similar to food stamps), combined with grants and long-term loans to offset the upfront cost of loss reduction measures. The amount of the vouchers will be reduced when the property is made safer since the risk-based premiums would be lower.
To learn more about flood insurance reform, see the Penn Wharton PPI Issue Brief Implementing the National Flood Insurance Reform Act in a New Era of Catastrophes.