WASHINGTON -- FEMA Administrator Craig Fugate says middle class and poor homeowners shouldn't be forced to pay substantially more for flood insurance premiums but that he lacks authority to either delay or provide exemptions under the 2012 law his agency is now implementing. Fugate, testifying Wednesday before the Senate Banking Committee's Economic Policy Subcommittee, said premiums should reflect the...
WASHINGTON -- FEMA Administrator Craig Fugate says middle class and poor homeowners shouldn't be forced to pay substantially more for flood insurance premiums but that he lacks authority to either delay or provide exemptions under the 2012 law his agency is now implementing.
Fugate, testifying Wednesday before the Senate Banking Committee's Economic Policy Subcommittee, said premiums should reflect the risk for "second homes," as well as businesses and affluent homeowners who can afford the higher costs. But not for those homes who can't afford the increases and haven't flooded repeatedly.
At the hearing, senators representing a diverse group of states, including Louisiana, New York, Oregon New Jersey, Nevada and Massachusetts, said they've heard from constituents frustrated and angry after receiving notices of planned rate hikes of 100 percent, 200 percent, 500 percent, even 3,000 percent.
Fugate said he understands the frustration as his agency implements the Biggert-Waters flood insurance law.
"Should people who lived all their lives in a home who are middle class be priced out of their homes?" Fugate said. "I don't agree."
Pressed by Sens. Mary Landrieu, D-La, and David Vitter, R-La, and other lawmakers to explain why FEMA is significantly behind implementing an affordability study, but can't delay large rate increases, Fugate said that's because of the way the law is written. There is no provision in the law that allows FEMA to consider affordability as it implements the premium adjustments required by Biggert-Waters, he said.
"I read the legislation," Fugate said. "My attorneys read the legislation. Our staff looked at it. If I had a way based upon the legislation, the technical implementation, I don't see it."
What it will take to protect homeowners from large increases, he said, is legislative fix adopted by both the House and Senate.
"I need your help," Fugate told Vitter who joined Landrieu in pleading for relief from unaffordable increases.
Landrieu said the law was put together hastily, without consideration of the potential impact on people whose families lived in the same homes for generations.
It's important for Congress, if FEMA can't or won't do it, to pass legislation delaying the law's implementation so fixes can be made, Landrieu said.
According to Alicia Cackley of the Government Accountability Office, approximately 438,000 policies won't be eligible for continued premium subsidies, including 345,000 policies for non-primary residences, 87,000 business policies, and 9,000 policies for single-family properties that had severe-repetitive loss claims.
Subsidies on most of the approximately 715,000 remaining subsidized policies are expected to be eliminated over time as properties are sold or coverage lapses, as are previous exemptions from rate increases after flood zone map revisions, she said.
Cackley said there are some solutions to unaffordable premium increases, but all have drawbacks.
For example, she said, a subsidy program could be developed based on the financial need of property owners. Unfortunately, she said the National Flood Insurance Program doesn't collect the policyholder data required to assess need and determine eligibility and it could be difficult for FEMA to develop and administer such a program given its "management challenges."
Michael Hecht, president and CEO of Greater New Orleans Inc., said Wednesday's hearing brought well-deserved attention to what has become a growing crisis.
"Today was the day appreciation of National Flood Insurance Program challenges went national," Hecht said. "The need to reform Biggert-Waters came from senators from New York to Nevada, from both Democrats and Republicans. This is critical, because Louisiana cannot and should not solve this alone -- affordable insurance is a national imperative."
Senators on the banking subcommittee said their constituents are bewildered.
"They don't have $9,000 when they were paying $1,000," said Sen. Charles Schumer, D-NY.
Vitter asked whether FEMA could gain revenue by more aggressively enrolling the estimated 2 million homeowners who should have mandatory flood insurance but don't have premiums. Fugate said the flood insurance program now imposes penalties on banks that approve mortgages for homes that should have coverage, but don't.
That is resulting in better compliance, he said.
Vitter also said even as "conservative Republican he can't justify the 30 percent fee insurance companies receive for processing and administering flood insurance policies.
Fugate responded that flood insurance policies are harder to write than traditional insurance, and the rates are generally justified. However, he said, for more expensive policies, it might make sense to change the fee structure from a flat 30 percent to a fee better reflecting actual costs.
Fugate said homeowners can reduce their premiums by mitigating risks, including elevating their homes. Some lawmakers said that isn't always an option because the costs can be prohibitive.
Not everyone who testified at Wednesday's hearing was seeking to delay or significantly modification in Biggert-Waters, which was overwhelmingly approved last year by both the House and Senate and drew support from every Louisiana member of Congress.
"It may be politically expedient and popular locally to delay map modernization or delay rate increases," said Steve Ellis, president of Taxpayers for Common Sense. "But what may make good local politics generally makes bad insurance policy - and by extension with federal flood insurance - bad public policy. People deserve to know the cost and risks of where they live. And taxpayers deserve to have those who choose to live in harm's way pick up their share of the tab."