Senator wants Alaska to set up its own flood insurance program

Alaska property owners have paid more than four times as much in premiums than they received back in claims under the National Flood Insurance Program going back to 1980.

“It’s kind of ugly,” Lori Wing-Heier, the state’s insurance division director, told legislators this spring. “We don’t have the storms they get in Texas or Louisiana.”

The nationwide program, which is voluntary for states and communities, has been around for more than half a century. It pools together property owners from all the states and territories, much like group health insurance programs take in high-risk people, with low-risk, healthy people subsidizing care for those who have more claims.

“We’re subsidizing the coastal states in the Lower 48,” said Sitka Sen. Bert Stedman, sponsor of Senate Bill 180, which would establish a state-operated Alaska flood insurance program as an alternative to the national program. “We’ve been looking at creating our own program.”

An Alaska Department of Commerce report in October 2019 showed that Alaska property owners paid $43.1 million in premiums to the federal program 1980 through 2017, receiving $9.7 million in payments on claims. The only states with even lower returns on their premiums were Wyoming, Utah and Montana.

“Our flood premiums are horrendous,” Wing-Heier told lawmakers at a Senate Labor and Commerce Committee hearing on March 25.

“Everybody that has a mortgage … and it’s federally insured, they require flood insurance,” Stedman said at the same committee hearing. Insurance is mandatory for property in high-risk areas, as determined by flood maps, whether the mortgage is federally insured or held by a federally regulated lender.

Private flood insurance may be available for some properties, but the cost can be significantly higher than the federal program.

The average federal premium on a single-family home in a high-risk flood zone in Alaska was $1,111 a year, according to the Commerce Department’s 2019 report, with the average even higher, at $1,328, for 141 property owners in the program in the Matanuska-Susitna Borough.

It’s not an issue in Wrangell, which pulled out of the national program about 40 years ago, said Carol Rushmore, the borough’s planning and zoning director.

“Our flood hazard zone is (only) the shoreline,” not rivers or flood plains, and only a couple of residences ever showed up on flood maps, she said.

Stedman has been looking for a better solution than sending millions of dollars out of state for insurance coverage that is not used much. “We’ve been building on the waterfront (in Alaska) forever,” he said, and a state insurance authority should be able to manage and insure property risks separate from the federal program.

The Labor and Commerce Committee moved the bill on April 18, sending it to the Finance Committee. But with a lot of regulatory and financial questions to answer in trying to set up a new insurance pool, the bill is not headed toward passage before the Legislature’s May 18 adjournment deadline.

Wing-Heier said her division would continue working on the bill before the next legislative session. Setting up and funding the state insurance program would cost millions of dollars.

The Senate Finance Committee, which Stedman co-chairs, has added intent language to the budget that directs the Department of Commerce to submit a report by Dec. 20, listing how much property owners in each participating community have paid into the federal program in premiums since 1980, and how much the program has paid out in claims in each community.

Legislative intent language does not have the force of law, and is often used to provide direction, not requirements, to state agencies.

A national property insurance association, a trade group for commercial insurance agencies, sent in written testimony against the bill in the Labor and Commerce Committee. “This type of program does NOT exist currently in ANY state,” the trade group wrote.

The financial risk to the state and the cost to property insurers doing business in Alaska would be excessive and are better handled under the federal program that spreads the costs nationwide, the trade group said.

The National Flood Insurance Program’s authority to operate expires in September, unless renewed by Congress. Similar deadlines and risk of shutdowns are common for the expensive program, which Wing-Heier called “a political football.”

 

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