Flood insurance battle reaching high-water mark

Flood damage in Salina, Colo., in 2013
Joe Amon | The Denver Post | Getty Images

The Biggert-Waters Act, which became law in 2012, was designed to stop the National Flood Insurance Program from going deeper into debt by cutting federal insurance subsidies to property in flood-prone areas. But the law's future has been thrown into question.

The Senate voted overwhelmingly last week to stop Biggert-Waters implementation for four years, and some House members are calling for an immediate repeal. That's because since the law went into effect last October, the price of flood insurance has risen dramatically for thousands of homeowners across the country.

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"My flood insurance premiums have gone up 50 percent," said Marc Roy, whose home in New Orleans remains damaged from Hurricane Irene in 2011.

"I've had to raise my deductible to $10,000 a year to try and keep the rates down," said Roy, a professor at the Disaster Resilience Leadership Academy at Tulane University. "I think it's crucial they delay Biggert-Waters with all the premiums going up."

2012 Claim Report for the top 10 states

State Total Number of 2012 Claims State Total 2012 Claims Payments
New Jersey63,805New York$3,439,521,916
New York52,986New Jersey$3,256,146,065
Delaware1,252Rhode Island$31,380,186

As a result of the insurance subsidies and massive claim payouts following extreme weather events such as Hurricane Katrina and last year's severe flooding in Colorado, the flood insurance program is $24 billion in debt.

Biggert-Waters was intended to temporarily shift the financial risk of flood insurance from taxpayers to home and building owners, who buy the coverage from private insurers. Twenty percent of policyholders had paid the subsidized rates.

The law had a wide range of political support, from deficit hawks in Congress to environmental groups such as the Union of Concerned Scientists (UCS).

"Subsidized insurance rates are only reinforcing risky development choices that are hit by climate change," said Rachel Cleetus, a senior climate economist at UCS, when asked about Biggert-Waters in September.

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However, key provisions in the law require the flood insurance program to raise rates on areas with higher flood risks, and to change how updates to the Flood Insurance Rate Map (FIRM)—a government map delineates flood hazard zones—affect policyholders.

For instance, homes that were built to Federal Emergency Management Agency codes in 1996—FEMA has oversight over the flood insurance program—are now subject to flood insurance rates that are higher by thousands of dollars.

Bob Childress, CEO of Florida-based Solace Insurance, said that many homeowners who previusly did not face high premiums "can't afford the much higher flood insurance rates."

Severity of California drought

What lies ahead for Biggert-Waters remains to be seen. With its four-year delay, the Senate measure would in essence kill the law, which is due to expire in 2017.

Some, such as Cleetus at UCS, call for vouchers for low-income residents while keeping most of the bill and the higher premiums in place.

The House has yet to take up the Senate's bill, but even one of the law's sponsors, Rep. Maxine Waters, D-Calif., is pushing for a delay of three years (co-sponsor Biggert is no longer in Congress).

President Barack Obama also is against a delay but said he would not veto the Senate bill and would work with Congress to find a way to address the issue of rising premiums. Speaker John Boehner, R-Ohio, has said he would not consider a four-year delay but would be open to other reforms.

A move by FEMA on Friday could help some people subject to rising premiums. Certain homeowners who met previous flooding codes that have since been revised won't see premium hikes for up to two years—but only because a recent spending bill passed by Congress keeps the agency from using funds to implement the hikes.

Hurting housing market

The uncertainty surrounding Biggert-Waters could make an already-rocky housing market even tougher, said Childress at Solace, who prefers that the private sector run flood insurance but does not oppose some form of subsidy—a position he acknowledged is contradictory.

"Homeowners are having a tough time in places like Florida when it comes to selling," he said. "Without knowing what flood insurance premiums are going to cost, it will keep potential buyers away."

(Read more: Rising mortgage ratesa boon to smaller lenders)

But Roy at Tulane said the boiling point over flood insurance premiums has been reached.

"This is such a mess," he said. "There's no easy solution, but I think government needs to [either] get in and do the job when it comes to flood insurance, or get out completely—but do something."

—By CNBC's Mark Koba. Follow him on Twitter @MarkKobaCNBC.

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