Flood Insurance

National Flood Insurance is Insane


The observation, usually attributed Albert Einstein, that insanity is ?doing the same thing over and over again and expecting different results is a pretty good description of the federal government's National Flood Insurance program. The New York Times today has a terrific op-ed, "End Federal Flood Insurance," by two economists explaining in detail the costs and stupidity of subsidizing insurance that encourages people to live in dangerous flood-prone areas. A tidbit:

IT'S no surprise that it can be very expensive to live near the ocean. But it may come as a surprise to American taxpayers that they are on the hook for at least $527 billion of vulnerable assets in the nation's coastal flood plains. Those homes and businesses are insured by the federal government's National Flood Insurance Program.

You read that right: $527 billion, which is just a portion of the program's overall liability of $1.25 trillion, second only to Social Security in the liabilities on the government's ledgers last year, according to government data.

The flood insurance program was created by Congress in 1968 to fill a void: because of the risk, few carriers provided flood insurance. Now, private insurers offer flood insurance in a partnership with the government — but taxpayers shoulder all the risk. It has turned out to be a bad bet. The program is $18 billion in debt, a sum the government acknowledges probably will never be paid back by premiums, and it is likely to need a new multibillion-dollar infusion to pay claims from Hurricane Sandy. It is long past time for the government to stop subsidizing home and business owners who live and build in dangerous flood zones.

Homeowners and businesses should be responsible for purchasing their own flood insurance on the private market, if they can find it. If they can't, then the market is telling them that where they live is too dangerous. [emphasis added] If they choose to live in harm's way, they should bear the cost of that risk — not the taxpayers. Government's primary role is ensuring the safety of its citizens, so the government's subsidizing of risky behavior is completely backward.

Who else might have railed against this economically and ecologically absurd program? Oh right, that would be Reason. For example, see contributor James DeLong's depressingly insightful 1999 article, "All Wet," in which he observed:

People are now becoming so used to the idea that the federal government will pay for disasters that they are not bothering to buy even the subsidized flood insurance. In most places, less than 30 percent of the properties located in designated flood plains are covered.

The response to such developments? The feds are now working with communities, buying back properties, passing regulations, yada, yada, yada. All to try to keep people from doing what government payments make it profitable for them to do: build in flood zones. Indeed, the feds seem anxious to consider anything except the one solution–eliminating the insurance program–that might actually change the situation.

Check out Reason's extensive reading list of hurricane and flood insurance related public policies.