Proposed rate increases to the National Flood Insurance Program are so large they pose a threat to the Louisiana economy and could make it nearly impossible for owners to sell thousands of properties that lie outside the New Orleans region’s federal levee system, Insurance Commissioner Jim Donelon said Wednesday.
“The National Flood Insurance Program is more important for Louisiana than any other state,” Donelon said during the Baton Rouge Rotary Club’s lunch meeting.
In general, homeowners and commercial policies don’t cover flooding. That coverage must be purchased separately through the federal program.
Roughly 500,000 Louisiana homes and businesses are covered by the program, Donelon said. Since the federal program began, Louisiana has collected $16 billion in flood loss payments, more than any other state. Around $15 billion of the total resulted from hurricanes Katrina and Rita.
The program is about $28 billion in debt; $10 billion of that from Hurricane Sandy. Congress wants to eliminate the subsidies that make flood insurance affordable.
The idea is to make the program’s rates “actuarially sound,” or self-supporting, over a five-year period. But that could eventually mean enormous increases in rates.
Billy Ward, president of the Louisiana Home Builders Association, has said some property owners could see rate increases of 4,000 percent.
The increases are capped at 20 percent of the insurance’s actual cost as long as the covered property doesn’t change hands, Donelon said. If the property is sold, the new owner would see rates rise to the actual cost.
For thousands of property owners in St. Charles, Terrebonne and lower Jefferson parishes, the costs would be so high that their property would be rendered virtually impossible to sell, he said.
Donelon will take part in a roundtable discussion on flood insurance Thursday in Washington, D.C.
Although he hopes Congress will act to provide some relief to flood rates, it’s critical that longer-term options be investigated, he said.
The state Department of Insurance doesn’t regulate flood insurance rates, but Donelon said he is willing to hire a consultant to review the data on which the federal program’s rates are based.