Get Flood Insurance on Solid Ground

Published April 3, 2011

By any measure, the National Flood Insurance Program (NFIP) faces grave problems.

Consider the facts: NFIP, which its creators promised would pay its own way, currently owes the U.S. Treasury $18.3 billion and has no practical way of paying it back, subsidizes development in environmentally sensitive areas where it should not take place, and has failed in its stated goal of making the United States safer against floods. Clearly, it needs help. That’s why the two of us, one a conservationist, the other a free-market advocate, see much to like (and a few flaws) in a new Republican-originated bill to reform the flood program that’s now moving forward in the House of Representatives.

In particular, the proposal, proffered by Rep. Judy Biggert, R-Ill., offers very good ideas about rates and flood mapping but contains distressing provisions that could expand the program and ignore some risks.

Let’s start with the good parts: Biggert’s bill, by about 2020, would make sure that nearly all properties in NFIP pay their own way. Today, nearly a quarter of all covered properties receive rates that the program’s overseers at the Federal Emergency Management Agency concede aren’t actuarially adequate.

If private companies knowingly charged these rates, state regulators would shut them down and, in some places, consider criminal charges against executives. Thus, a move toward actuarial rates is hugely important to ensure the protection of people and the environment and to help the public better understand risk.

Likewise, Biggert’s proposals to improve mapping standards would help a lot: While a massive map modernization project carried out over the past decade has improved the quality of the data on which FEMA bases rates, the agency’s underwriting standards still leave a lot to be desired.

With the right expert advice and little out-of-pocket expenditure, FEMA could revise its mapping standards nationally to ensure that maps are accurate and account for a variety of risks including altered hydrology and changes in weather patterns and storm frequency.

Good as these provisions are, however, the bill has some problems too. First, it adds federally backed business interruption coverage to the program. Even if this type of coverage were not already available in the private market (albeit at prices higher than many want to pay), it’s still fiscally foolish to consider any expansion of a program that owes the Treasury as much as NFIP. There are legitimate reasons why FEMA might phase in rates or even offer subsidies to people of modest means suddenly presented with a mandate to buy flood insurance. But it shouldn’t let anyone pretend the risk simply does not exist. Both of these provisions need to change.

Both of us wish, finally, that the bill addressed some topics that it doesn’t.

Although the federal government is already barred from writing flood insurance on environmentally sensitive barrier islands and barrier beaches, members of both parties in Congress should be able to agree on efforts to place additional limits on where and how the federal government can subsidize new development, particularly on properties that have been rebuilt multiple times at taxpayer expense.

The bill also fails to encourage mitigation and the protection of natural features that reduce storm surges. Furthermore, besides ordering a few studies on partial privatization, the bill does nothing to deal with the enormous debt that the program has accumulated. As a result, Congress will almost certainly have to allow the program to go even deeper in hock to the Treasury if another Katrina-scale storm strikes the nation.

In short, however, the new Republican flood insurance proposal offers far more good ideas than bad ones. If nothing else, it’s a good start to serious reform efforts.

Eli Lehrer is the vice president of Washington, D.C., operations of The Heartland Institute. Joshua Saks is the senior legislative representative of Water Resources Campaigns of the National Wildlife Federation.