WASHINGTON — Democrats are raising concerns about a Republican push to transfer more of the risk of flood insurance to private insurers as Congress works toward reauthorizing the federal flood insurance program.

During a House Financial Services Committee hearing this week, Rep. Maxine Waters, D-Calif., said she fears private insurers will go after the wealthier, low-risk homeowners and leave the National Flood Insurance Program to cover the riskier, more flood-prone homeowners.

"I believe that reauthorization can be bipartisan," said Waters, the top Democrat on the panel. "But I am concerned that if we do not work together and heed my call, it will cause irreparable harm to the millions of Americans who rely on the NFIP to protect their homes and businesses."

Representative Maxine Waters, a Democrat from California and ranking member of the House Financial Services Committee.
"I am concerned that if we do not work together and heed my call it will cause irreparable harm to the millions of Americans who rely on the NFIP to protect their homes and businesses," says Rep. Maxine Waters, D-Calif. Bloomberg News

But Chairman Jeb Hensarling, R-Texas, and other GOP lawmakers argue that helping private insurers to bear more of the costs and risk of flood damage would be a significant improvement.

R. J. Lehmann, a senior fellow at the R Street Institute, testified that is essential that "we begin the transition to private, risk-based flood insurance market."

He noted the NFIP already serves a high-risk pool of homeowners. "Only a relatively small number of homeowners buy flood insurance and vast majority of NFIP policy holders live in a 100-year flood plain," Lehmann said. "That is a high-risk cohort. There are no cherries to pick."

Lehmann also said that the Federal Emergency Management Agency completed a reinsurance transaction earlier this year, which allows the federal agency to pass some of its flood risks on to investors.

Steve Ellis, vice president of Taxpayers for Common Sense, said FEMA should employ reinsurance and other financial instruments to manage risk.

"There have been enormous technological innovations that enable insurers to accurately price risk and provide products and coverage unavailable through NFIP," Ellis said. "Today the industry is clamoring to write flood insurance and remove some of the risks from taxpayers like they do elsewhere in the world."

But Caitlin Berni, vice president of policy and communication for Greater New Orleans Inc., said there is "no simple solution to maintaining the affordability of NFIP premiums and keeping the NFIP on sound financial footing."

Greater New Orleans is a regional economic development alliance serving a 10-parish region of southeast Louisiana. The alliance is concerned the Republicans' approach might increase premiums and reduce affordability.

"Increasing the floor on premium increases from 5% to 8% will have a detrimental effect on premium affordability," Berni said. "Increasing the floor will negatively impact many more policy holders. We urge Congress not to increase rates or surcharges in this reauthorization bill."

Congress is under the gun to pass a flood insurance bill by Oct. 1, when the program is due to expire.

There are also concerns that House GOP leaders want to stop grandfathering flood insurance premium rates by 2021.

"The grandfathering of properties is one of the most effective affordability tools available," said Rebecca Sternhell, deputy director of the New York City federal affairs office.

"Increasing the floor on premium increases from 5% to 8% will have a detrimental effect on premium affordability," she said. "We urge Congress not to increase rates or surcharges in this reauthorization bill," she said.

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