Builders and remodelers breathed a sigh of relief last July when Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012, which extended for another five years funding for the National Flood Insurance Program (NFIP).

“Without that extension, we wouldn’t have been able to sell a single house down here,” recalls Phil Hoffman, owner of Hoffman Custom Homes in LaPlace, La., and president of the New Orleans Area HBA.

But now, Hoffman and other builders are hyperventilating about provisions in Biggert-Waters that, in an effort to return NFIP to solvency, impose significant—and in some cases, onerous—premium rate increases on some homeowners. The act also includes provisions that would disallow the grandfathering of policies upon the sale of a house that was built above the flood base elevation.

The act called for premiums to rise for some homeowners in October. Early this month, the U.S. House of Representatives voted to delay by one year any increases in flood insurance premiums on grandfathered policies. Other legislation has been introduced to delay premium increases, give municipalities greater flexibility to provide subsidized flood insurance, and reform how the Federal Emergency Management Administration (FEMA) redraws flood maps.

But builders fear that Biggert-Waters reflects a deeper resentment in Washington, D.C.—particularly among budget hawks—to using taxpayer money for programs that have an impact on homeownership, purchases, or rebuilding.

Phasing out insurance subsidies

Flood insurance is mandatory for homeowners with federally backed mortgages living in areas subject to flooding every 100 years. Since its inception in 1968, the NFIP has offered subsidies to policyholders who currently pay anywhere from $600 to $1,300 in annual premiums, based on their market’s risk assessment.

As of April 30, the latest date for which data were available, there were 5,556,913 policies and $1.282 trillion in insurance in force. Single-family homes accounted for 3.8 million of those policies, and another 1.3 million policies covered condos and multifamily homes. Florida has the highest number of policyholders—more than 2 million—followed by Texas (642,593), Louisiana (484,595), California (254,920), New Jersey (243,848), and South Carolina (204,220), according to FEMA.

Several years of devastating natural disasters and escalating property damage claims have left the NFIP at least $20 billion in the red. Biggert-Waters—which was passed before hurricanes Isaac and Sandy wreaked havoc last year—called for phasing out subsidies and discounts on flood insurance premiums, and pushing more risk onto private-sector insurers and policyholders.

Biggert-Waters also authorized the creation of a national reserve fund to help the NFIP handle major flood catastrophes. That provision requires Congress-approved funding, and would help pay for the updating flood control maps. Redrawn maps have already required new and existing homes to be elevated above grounds that would be affected by severe storms and rising tides. New York and New Jersey have introduced programs through which those states have offered to buy out owners behind flood plains who can’t afford to elevate their houses, or don’t want to go to the expense and would prefer to move.

FEMA, which oversees the NFIP, states that about 80% of households in this program had flood insurance policies that are already “actuarially rated,” meaning that their premiums reflect “full risk rates.” However, under Biggert-Waters, 5% of policyholders—including owners of non-primary private residences, business properties, and “severe repetitive loss properties” that are subject to redrawn flood plain maps—would incur 25% per year rate increases “until the true risk premium is reached.” Another 10% of policies would retain their NFIP subsidy until the owners sell their houses or let their policies lapse.

Four percent of policyholders—including owners of condos and other multifamily properties—would not see immediate rate increases.

Not Just a Gulf States Issue

Last year, the NAHB supported the passage of Biggert-Waters. But it also threw its weight behind the recent amendment that delays premium increases on grandfathered properties. “NAHB believes this amendment is a first step in balancing consumer affordability and re-establishing the solvency of the program,” wrote Jim Tobin, NAHB’s chief lobbyist, in a letter he sent June 4 to the amendment’s co-sponsor Rep. Bill Cassidy (R-N.Y.), and CC’d to all House members.

Some builders note that the passage of Biggert-Waters exposed deeper flaws in the way disaster-related insurance is thought about, determined, and paid for in this country.

Why, asks Randy Noel—the owner of Reve, a Louisiana builder, and former president of the New Orleans and Louisiana HBAs—does the federal government mandate insurance against property damage caused by flooding but not by other severe weather or seismic events such as hurricanes, tornadoes, or earthquakes? And why should catastrophic events like Hurricane Katrina be factored into the actuarial calculations for flood insurance premiums when the flooding that submerged New Orleans in 2005 actually was caused by “a failure of structures”—that is, the failure of levees that the U.S. Army Corps of Engineers had certified but, investigations later proved, had been insufficiently built to withstand a storm of Katrina’s magnitude.

“Events like Katrina and Sandy need to be taken out of those calculations,” asserts Noel.

(On June 19, NPR reported that revised flood maps issued by FEMA for coastal New Jersey did not factor in flooding caused by Hurricane Sandy but instead used computer models that incorporated similar storms. Those new flood maps actually lowered the elevations for some coastal areas such as Long Branch, N.J., where homeowners faced flood insurance premium increases of up to 3,000% under the flood maps issued in January. However, critics note that the new flood maps don't take a longer view that would account for rising tides caused by climate change.)

Noel notes that in some areas of Louisiana where FEMA or the Corps doesn’t recognize flood structures, homeowners who have never experienced a flood and who currently are paying about $1,000 a year in flood insurance premiums could see those premiums rise to as much as $15,000 as a result of Biggert-Waters. Noel also questions why a home buyer should have to pay a much higher premium when FEMA has already factored the flood risk into the previous owner’s insurance policy?

Hoffman and Noel believe that the NFIP’s solvency hinges on Americans and their elected officials seeing disaster relief and insurance as national issues, not just something that concerns Gulf State residents. Consequently, both builders favor a continuation of the federal government’s NFIP funding. “The government must step in when the private sector doesn’t provide services,” says Hoffman, a self-described conservative.

However, getting Congress on board will be an uphill battle when lawmakers such as Republican Sens. Richard Shelby (Ala.) and James Inhofe (Okla.) adamantly oppose using taxpayer money for disaster insurance or rebuilding. (When Congress was debating a relief package for victims of Hurricane Sandy, Inhofe called it a “slush fund.”)

To those lawmakers who oppose homeowner subsidies, Noel retorts “if you want to get rid of flood insurance, let’s also get rid of the Stafford Act [which provides federal disaster and emergency relief funding], or aid to foreign countries or everything else we do to help people. I think most Americans would draw the line on that.”

Noel expects that FEMA eventually will recognize levees “that work,” which would alter the risk level in some towns and minimize the more egregious premium increases. Noel also hopes that flood maps will be studied and approved by agencies other than FEMA because he thinks FEMA has become too obsessed with elevations and mitigation. (Tobin, the NAHB lobbyist, says his association has worked with Congress to address the need for modernizing the flood maps using updated hydrological and topographical data. “NAHB also believes in an independent appeals process that allows for maps to be changed or revised,” Tobin states.)

“Most people are resolved to the fact that they will have to pay a little more for flood insurance,” says Noel. “But don’t put people out of their houses; we just went through a foreclosure experience, so why go through another one?”

John Caulfield is a senior editor for BUILDER magazine.

Editor's note: Information about New Jersey's revised flood maps was added to this article after it was initially posted online.