Congress to Mull Major Reforms to National Flood Insurance Program

Published April 25, 2011

In the next few months, Congress will be considering several measures to reform, or even eliminate the debt-ridden National Flood Insurance Program (NFIP). The NFIP faces systemic problems that will require substantial reforms to correct. In a new release on the NFIP, the Smarter Safer Coalition, a group of environmental, free market and consumer organizations make several reform proposals for the ailing flood program.

Eli Lehrer, The Heartland Institute’s Vice President for DC Operations and head of the Center on Finance, Insurance and Real Estate argues that reform to NFIP is long overdue.

“NFIP has very serious problems and the plan would move every aspect of the program in the right direction,” said Eli Lehrer, National Director of the Center on Finance, Insurance, and Real Estate at the Heartland Institute. “For all too long, NFIP has wasted taxpayer money, endangered lives, and subsidized development in environmentally sensitive areas. National proposals like these can stabilize NFIP, protect property, preserve the environment and save lives.”

Sound Fiscal, Environmental Policy

The reforms proposed by the Smarter Safer Coalition are based upon a set of principles designed to protect the integrity of the program while promoting sound fiscal and environment policy. These reforms include:

Mapping: Maps must be accurate and implemented as soon as they are updated. A Technical Mapping Advisory Protocol (TMAP) Council should be established and propose new mapping protocols within one year to ensure flood maps reflect real risk based on the best scientific data and topography. FEMA would implement TMAP’s recommendations and update all maps to ensure accuracy.

Rates: Flood insurance rates must be risk-based and subsidies should not be implicitly included in the insurance rate structure. All rates should be risk-based within five years, with vacation homes and repetitive loss properties paying risk-based rates within two years and other properties paying risk-based rates within five years. Once rates are risk-based, FEMA must give credit for mitigation measures.

Subsidies: Subsidies must be explicit, targeted and not included in the insurance rate structure. FEMA must establish an explicit subsidy mechanism only for those who truly need assistance based on a combination of income and home value. Surcharges on high-value flood insurance policies will be used to pay for the subsidies.

Mitigation: NFIP must encourage mitigation of risk as well as the natural and beneficial use of floodplains. FEMA must ensure that severe repetitive loss properties are not a drain on the system through mitigation and a buy-out program. The Community Rating System should be improved and promoted so that communities are required to undertake mitigation efforts.

Matthew Glans ([email protected]) is a legislative specialist in insurance services at The Heartland Institute.