Explainer: Putting Biggert-Waters Flood Insurance Reform Act in Perspective

What it is

The Biggert-Waters Flood Insurance Reform Act of 2012 makes a number of changes to the National Flood Insurance Program (NFIP),including increasing flood insurance premiums so the rates people pay will more accurately reflect their risks. Many discounts and subsidies policyholders received in the past -- including those for second homes -- are being eliminated or will be phased out over the next several years. The act also calls on FEMA to incorporate sea-level rise into its future flood maps.

There’s a common misperception that all these new rules are going into effect as a result of Sandy, but that’s not the case. Biggert-Waters was passed months before the storm, and these changes were already due to take place. It's just a coincidence that Sandy happened around the same time.

Background

Congress created the National Flood Insurance Program in the late 1960s after Hurricane Betsy hit New Orleans, causing over a billion dollars in damage. Flood insurance was nearly impossible to secure from the private market, so lawmakers felt the federal government had a duty to step in and provide help to residents along the coast. The program was set up to be self-sustaining, borrowing from the U.S. Treasury only when necessary, and it generally worked for several decades. But beginning in 2005, Hurricanes Katrina, Rita, Wilma and several other storms caused it to blow through its budget and go $24 billion in debt.

With 5.6 million policyholders depending on the NFIP and costly natural disasters becoming more common every year, many lawmakers were concerned about its long-term sustainability. Indeed, a Congressional Budget Office study found that current premium rates were not enough to cover the program’s expected costs. There were also some who compared flood insurance to a Ponzi scheme and called for the government to get out of the business. "I would say that this is a program that would make Bernie Madoff blush," said Michigan Republican Congresswoman Candice Miller, who introduced an amendment back in 2011 to eliminate the NFIP entirely.

In the end, the Biggert-Waters Act, which passed with overwhelming support, was seen as a compromise by continuing to provide a safety net for residents of flood-prone areas while making changes to help put the NFIP back on more secure financial footing.