Hurricane Katrina could continue exacting a price on Mississippi’s gulf coast residents and businesses for generations to come through exorbitant flood insurance premiums, Mississippi Insurance Commissioner Mike Chaney says in explaining his bid to head off such an outcome by suing the federal government in the U.S. District Court for the Southern District of Mississippi.
The new rate structure contained in the Biggert-Waters Flood Insurance Reform Act of 2012 is designed to eventually eliminate federal subsidies and to pay down a deficit some media report to be $24 billion but Chaney puts at $28 billion.
The new rates kicked in on July 1 and will continue to reach increasing numbers of flood-zone property owners in the months and years ahead.
The deficit “was accumulated during Katrina,” Chaney said, when the Corps of Engineers used flood insurance money to cover losses caused by levee breaks.
“They need to wipe out the debt in a logical way,” he said of Congress, starting with getting control of administrative costs the insurance commissioner claimed eats up 40 percent of premium payments.
What isn’t used on administrative costs is swept out of the fund annually to pay off earlier losses instead of building up a reserve, according to Chaney.
He acknowledged fiscal stability must be restored and the program rescued from the series of starts and stops Congress has put it through in recent years. But not through increases of over 3,000 percent in some instances, Chaney said, calling for Congress to revise Biggert-Waters to assess rates that are “actuarially sound” and not sweeping increases that can erase all the red ink in just five years.
“Today, many consumers face loss of their property due to the increases,” he said.
Specially, according to the 115-page suit, many property owners are unable to cover their premium renewals while others must purchase flood insurance for the first time as new mapping expands flood zones to their locations.
Those who want to be done with all the flood insurance headaches have found themselves unable to sell their property, the suit says.
In the suit filed by attorneys for the Department of Insurance rather than the Mississippi Attorney General’s Office, Chaney argues that the Federal Emergency Management Association – caretaker of the flood insurance program – has failed to deliver on a series of key studies and reports mandated by Biggert-Waters. “Without this crucial information, FEMA plainly lacked and continues to lack the necessary information to avoid arbitrary and capricious decision making,” the suit says.
The suit notes that FEMA administrator Craig Fugate conceded to the Senate Banking, Housing and Urban Affairs Committee in September that Biggert-Waters “raises affordability issues,” but claimed Congress had tied his hands.
“I need your help,” he told the panel. “Without additional legislative report I cannot address it.”
Fugate further conceded, according to the suit, that an affordability study due to Congress in earlier summer 2013 will likely take another two years to finish “due to the need to obtain data on policyholders and their incomes.”
Another Katrina consequence: Mississippi and Louisiana are the first states to include the post Katrina statistics in their flood rating methodology, the suit says FEMA has conceded.
“This means that Mississippi’s citizens will be among the first in the nation to have these drastic rate increases imposed, and that Mississippi citizens will pay the, for many years before citizens of other states are required to do likewise.”
The coastal states of Louisiana, South Carolina and Florida have joined the suit as friends of the court, Chaney said.
Meanwhile, as Chaney awaits the outcome of the suit, he said he and insurance commissioners from other states are exploring the possibility of persuading private insurers to write flood coverage. “We’re looking at it on a national level,” he said.
“What we’re wanting Washington to do is accept private flood insurance for federally backed mortgages. We’re trying to recruit private insurers to come in and write insurance at a lower cost than the federal insurance.
“We think we’ll be successful.”