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Repeat Claims Inundate Federal Flood Insurance Program

FEMA defines a 'repetitive-loss property' as having two or more claims of more than $1,000 over 10 years.
As Congress works out the differences in several bills to reauthorize the National Flood Insurance Program, a local flood insurance expert says lowering the number of properties that put in repeat flood claims is a top priority. Joe Rossi, chairman of the Marshfield and Massachusetts coastal coalitions, said 150,000 buildings across the country are considered problem structures. He said those homeowners need mitigation help to elevate their properties. "We're going to pay for these properties either with claims through the program, with taxpayer dollars or with mitigation. We can pick," said Rossi, who was recently appointed to a task force the Federal Emergency Management Agency created to improve the claim process. "Mitigation saves a ton of money." The Federal Emergency Management Agency defines a "repetitive-loss property" as having two or more claims of more than $1,000 over 10 years, and "severe repetitive-loss property" as having at least four claims of more than $5,000 each, or at least two claims totaling the structure's current value. Nationwide, 11,000 severe repetitive-loss properties exist, and their numbers continue to grow, in part because of the effects of climate change and ongoing development. Scituate has at least 500 repetitive-loss properties – more than any other community in Massachusetts, according to the state office of Coastal Zone Management. Some homeowners bought their properties without understanding their risk and storm-damage history, since state law doesn't require property sellers to disclose past storm damage or flood insurance claims. The extreme cases are only a fraction of the flood program's 5 million active policies, but they historically have accounted for about 30 percent of its claims, Rossi said. "These properties give the program a bad name, when the program was designed so no one could be labeled non-renewable," he said. "The rates for these structures are significantly higher; they don't get off scot-free. There are penalties." Massachusetts usually operates in the black within the National Flood Insurance Program, which homeowners with federally backed mortgages who live in high-risk flood zones are required to pay into. But the program as a whole, which must be reauthorized by the end of September, is nearly $25 billion in the red. On Capitol Hill, lawmakers are scrambling to overhaul the half-century-old program. Allowing it to lapse would risk disrupting the buying and selling of homes in flood-prone areas across the country. Data show that some of the worst and most frequent flooding has occurred along the Gulf Coast of Louisiana and Texas. Houses along the Mississippi River have repeatedly been deluged. And the Atlantic coast from Miami to Boston faces perpetual – and escalating – threats. Although there are certainly beachfront mansions affected, many homes belong to working-class Americans. A report from the Union of Concerned Scientists forecasts that in the next two decades, nearly 170 U.S. coastal communities will face chronic inundation, defined as flooding at least 26 times a year. That's almost twice as many at-risk locations as today. Critics have argued that although the program was intended to encourage smarter development, its current design too often bails out people in flood-prone areas. In short, it incentivizes staying put, rather than moving to higher ground, and has had only limited success in discouraging development in questionable areas. Rossi said the main priorities of all bills being considered are affordability, sustainability, mapping, mitigation and participation from private insurers. A bill before the Senate, for example, directs communities with significant numbers of repetitive-loss properties to develop mitigation plans, provides funding for pre-disaster mitigation, preserves funding for updated flood mapping and has provisions to encourage flood risk disclosure. "For every dollar spent on mitigation, you save five in disaster funds, so it's worth spending the money," Rossi said. "It's an insurance program – we have to expect there will be losses. So we want to fix the problem, but we don't want to overcorrect it." Figuring out how to tackle the program's problems remains complicated and politically fraught. Lawmakers must decide whether to raise rates – and by how much – on the roughly one in five homeowners who pay below-market premiums mandated by Congress. Raising premiums to reflect true flood risk could shore up the program's finances; it also could mean sharp premium hikes and a public backlash over affordability. The same dilemma occurred when homeowners started feeling the effects of the Biggert-Waters Flood Insurance Reform Act of 2012, which eliminated flood insurance subsidies and caused premiums to soar. A relief act later repealed some of the most devastating provisions of Biggert-Waters. Some on Capitol Hill are pushing for more private firms to enter the flood insurance market – an idea Wright, the administrator, said he supports – although critics worry that companies could cherry-pick the least-troubled properties. Congress created the flood insurance program in 1968 because the costs of disaster assistance were escalating and private insurers had largely abandoned the market. The program also provides grants to help mitigate vulnerable properties, either by elevating them or in some cases buying out homeowners and tearing their structures down. In 2006, Scituate sent out letters to all repetitive-loss properties announcing a new program to encourage homeowners to elevate their homes. In this program, FEMA pays up to 75 percent of the costs, up to $40,000 for any property. Within just two years, the town had used federal dollars to help elevate about 50 homes. A House committee last month passed legislation to overhaul and reauthorize the program. If adopted, it would compel communities with persistent flooding problems to develop plans to reduce them and would require more transparency about a property's flood history. The Senate is also trying to strengthen the program by better funding flood mitigation projects, promoting the use of high-resolution mapping technology and encouraging private insurers to enter the market.

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