The federal government’s flood insurance program is facing billions of dollars in claims following the recent monster hurricanes, with those who live in flood-prone homes applying for government buyouts through the Federal Emergency Management Agency. Why not? American taxpayers have already bailed out the banks and automobile companies, among others.
There was a time when people who assumed increased risks as a result of where they chose to live would pay for those risks themselves. But in 1968 Congress enacted the National Flood Insurance Program, another product of the Great Society, to provide affordable insurance after private insurers stopped selling flood policies or began charging very high premiums for them because the business had become too risky. The program is administered by FEMA and covers about five million properties worth more than $1.25 trillion.
The flood insurance program borrows from the U.S. treasury because paying out more in damages than it collects in policyholder premiums has it drowning in $24.6 billion of debt. Congress must decide whether to reauthorize the program by the end of the year.
Since the value of the insurance exceeds the premiums being charged, taxpayers who reside inland foot the bill for the high-risk lifestyles of those who plant themselves in the path of hurricanes. The problem is only growing as sea levels rise and intense weather events become more frequent.
While originally designed to be self-funded from policyholder premiums, about 20 percent of flood insurance program policyholders pay insurance premiums that are about 60 percent lower than they would be if they reflected the true likelihood of flooding, according to government estimates.
The program places no restrictions on the number of times a property can be rebuilt and repetitive loss properties have accounted for 30 percent of flood claims paid since the flood insurance program began. As the Wall Street Journal recently reported, one Texas house has flooded 22 times. The homeowner made claims each time, and the resulting payments exceed the value of the house.
Why fret about rebuilding when the American taxpayer is there to foot the bill? It would be impossible for even the Angel Gabriel to make a program work when it encourages people to build in harm’s way.
A flood insurance program should discourage development in flood-prone areas by using risk-based premium pricing rather than encouraging people to use taxpayer money to build in flood zones. Those who face little risk of flooding should pay less for flood insurance; people at great risk should pay much more. The government may provide subsidies for the poor, but the flood coverage program should otherwise operate like other types of property and casualty insurance.
Encouraging development in vulnerable low-lying areas also increases the damage caused by these storms, which further increases taxpayer costs. It’s cheap for U.S. homeowners to build in harm’s way, but not for American taxpayers.
Despite the program’s rising costs, reforming the national flood insurance program will not be easy. It will require swimming upstream against the real estate lobby, homebuilders, and other development interests. The value of these littoral properties would decline if people were made to bear the true cost of their lifestyle choices, and that means a lot of coastal development would come to an end.
It is ironic that the one percenters who are affluent coastal dwellers and don’t like government programs enjoy the subsidized flood insurance premiums. Depending on others to bail them out is an addiction that knows no economic class.
Back in the day the American way was that you could live where you want, but you must assume the risks of your choice. The philosopher Joseph de Maistre wrote that people get the government they deserve. When it comes to federal flood insurance, ours is comprised of politicians mainly interested in staying in office and using taxpayer dollars to do so.
Originally Published: September 30, 2017
