Flood Insurance

National Flood Insurance is Insane


A flood of federal dollars

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.

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  1. You can have my flood insurance that is subsidized by others when you can pry it from the cold, dead tentacles of the octopus that’s clinging to it since it was washed ashore in a tidal wave that took out the house.

  2. You negative nellies. There’s no risk to the flood insurance anymore because the election, or should I say the Re-Ascension, ensured that the flood waters will recede and the ice caps will re-form as the planet starts the process of healing.

  3. The comments section of that op-ed is insane, too.

    1. Comments on an NYT op-ed insane? Next you’ll be telling us water is wet and the sun tends to rise in the east.

    2. The comments section of that op-ed is insane, too.

      A summary:

      Without federal flood insurance no one, anywhere, would ever be able to get flood insurance, so we all have to stick together and help each other out in a disaster because we know one day we’ll be needing help too, if not from a flood, then from an earthquake, wildfire or asteroid strike or something.

      1. What’s that law, where it’s impossible to tell a ‘true believer’ from sarcasm or something?

        1. Poe’s Law.

          1. “Any sufficiently advanced parody is indistinguishable from a genuine kook.”

            1. I guess I should attribute that quote. Lets try again:

              “Any sufficiently advanced parody is indistinguishable from a genuine kook.” — Mark Twain

              1. Not Edgar Allan Poe?

                1. Nah, that quote precedes Poe creating his law by a few years.

              2. That really from Twain? So Arthur C Clarke got his little saying about magic and technology there too, I guess.

      2. Which one is more likely:
        a) the above or,

        b)Because flood insurance premiums are capped by the Feds, the guys just outside the subsidy zone would have to pay significantly more than the subsidized rate. Therefore, as long as flood insurance is subsidized (and capped) no insurance company will ever be able to distribute their premiums to cover their exposure in an actuarially sound manner. Which means that if you live where it is required (and subsidized!) you can get flood insurance, if you don’t, you can’t.

    3. Apparently the only other option to subsidizing flood insurance is a forced mass evacuation of 200 million Americans away from the coast… says the commenter who called the article misleading.

  4. “National Flood Insurance is Insane”

    Not for those who get the pay out. Just for those who do the paying.

    1. Yeah, one of the reasons why drilling within sight of the coast is so hard to do is because wealthy people tend to donate to political campaigns, and the people who live along are coasts are disproportionately wealthy.

      This is the same thing. This is a disproportionate payout directly to the people who live along the coasts–who are most important in terms of campaign contributions.

  5. 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.


    1. What the hell are you talking about?

      The Fed doesn’t do the same thing over and over again, they usually double down on the stupid and expect different results.

  6. That’s not the kind of incentives we want the government creating, is it? Do we truly want politicians cultivating an environment where the homeowner shoulders all the risk? Is that really what we want?

    No. Make it seem safe for people to do risky things and then, oh, I don’t know, tax them or something, after making a show of pain-feeling and sleeve-rolling after a disaster. That’s what we need from government. That’s what we vote for.

  7. I can’t believe that Einstein said that. I’m pretty sure he knew the difference between a definition and an example of a thing.

    1. The earliest known appearance of the quote was in a Narcotics Anonymous publication released in November 1981, with no attribution.

      1. I can’t decide whether this is true or just SF trying to bullshit us with his librarianship, but I do so want it to be true.

        1. Damn, girl… You know I’ll be true to you…


          1. I’ve always hated that quote and knowing it came from 12-steppism is so gratifying.

            “We have a disease; progressive, incurable and fatal.” Yes, yes you do. The disease of douchebaggery.

            1. “We have a disease: progressives.”


          2. “The trouble with quotes on the Internet is that you can never know if they are genuine.” –Abraham Lincoln

            1. “When in doubt, attribute quotes to Mark Twain.” ? Mark Twain

              1. “or me” — Ben Franklin

            2. I’m just shocked to find out Albert Einstein was a junkie.

              Puts him in good company anyways.

      2. The problem is the appeal to authority.

        Like the “Beer is proof that God loves us and wants us to be happy” quote that is usually attributed to Ben Franklin.

        The quote is just as true regardless of who said it first. The appeal to Franklin’s authority is unnecessary.

        1. For the record, here, in a letter addressed to Andr? Morellet in 1779, is what Benjamin Franklin actually did say:

          Behold the rain which descends from heaven upon our vineyards, there it enters the roots of the vines, to be changed into wine, a constant proof that God loves us, and loves to see us happy.

          1. Yeah, Im aware. And it wouldnt surprise me if he said the same thing about beer at least once in his life too.

            But whether he did or not doesnt matter.

            1. But whether he did or not doesn’t matter.

              Very true, but I thought you might like the actual quote.

      3. SF: Tried to check it (Snopes was no help) – most the quotation mongering sites do attribute it Einstein, e.g., this one.

        1. Is that dead link some sort of meta-comment about me?

          1. False dichotomy!

            1. Oh shit, never mind, I thought I saw an or in there.

  8. It’s also bad for the environment, and the general public good.

    Imagine if the Atlantic coastline was free of structures other than piers for it’s entire length. There would be a shit ton more undeveloped beach, and a shit ton more space for wildlife, and more uncrowded public access beach for people to enjoy.

    We’re subsidizing rich people’s beach houses so they can prevent the rest of us (who are paying for their flood insurance) from accessing it.

    1. I make that argument all the time.
      When I was a child most beach houses, on all but the highest ground, were disposable wooden cottages or small cinder block structures.Relatively cheap, musty smelling, water-stained motels too. Large stretches of beach were undeveloped. Now it is all condos and multi-million dollar houses we all have to pay to rebuild regularly.

      I really hate to see piers torn down for condo development. The owners can’t make the property taxes off of access charges and bait sales. The property is taxed at an over-valued rate based on maximum developed value thanks to subsidized flood insurance.

      1. Yes. I can see the value of flood insurance in the short term. Say you have a property which depreciates to 0 in 15 years. You don’t want to insure it for all that time, but you might want to insure it year to year for the first few against the chance that the flood (which you expect eventually) will come that year. But it doesn’t make sense to insure, or build, anything to last past a date where there’s a 75% chance by then that it’ll be wiped out. Think of it like car collision insurance that you might buy for the first few years on an expensive car, but after that just assume the risk in the knowledge that ultimately it’ll be junk one way or another.

        And you’re right, the quality of beach houses has increased enormously over the years, to where they’re treated as permanent primary residences instead of just a hangout someone might occupy 20% of the year.

  9. What I want to know is when are we going to get taxpayer provided Clean Underwear Insurance? At any moment someone could have an accident and what will they do if the taxpayer is not there to provide clean underwear?

  10. The flood insurance program was created by Congress in 1968 to fill a void: because of the risk, few carriers provided flood insurance.

    As we all know, risk-priced insurance coverage is a market failure.

  11. This whole argument is moot as long as its the policy of the Federal Goverment to dole out billions in handouts after a disaster, regardless of Insurance or other arrangements. In fact, given that idiotic policy, it’s preferable to have a Federal Flood Insurance program so that people in flood prone areas shoulder a disproportionate share of the overall kickbacks they get.

  12. OT, but related:
    “Federal jobless benefits could vanish”
    At least the woman injects a bit of sanity:
    “Two studies – by the Federal Reserve Banks of Chicago and San Francisco – estimated that extended benefits during the recent downturn added about 0.8 and 0.4 of a percentage point, respectively, to the unemployment rate.”

  13. “I can’t donate to your cause because my money goes to subsidize some lawyer’s beach house.”

    1. Brilliant. I might have to use that sometime.

  14. I have been preaching this for years. But if we’re going to subsidize, I want a housing subsidy. All of y’all should pay for either a) my vacation home on the moon or b) a Fortress of Solitude at the Mountains of Madness. I’m easy. But keep in mind, if you pick option a I’ll expect a transportation subsidy as well. You’ll probably come off cheaper with option b.

  15. You all know what the ultimate answer is: EVERYONE has to buy flood insurance! If you don’t buy it, there will be a penaltax.

    1. Wouldnt it be easier to just outlaw floods?

  16. “I freed the WHO?”

    -Abraham Lincoln

  17. Well I’ll be…for once they were right: http://www.app.com/viewart/201…..-Windansea

    You know how they’re always saying that gov’t regul’ns are good for business because they make businesses do things that will turn out to be good for them? And we’re always saying, that’s ridiculous, if they thought it was good for them, wouldn’t they do it without compulsion? Are people in gov’t more knowledgeable about businesses than their owners are? Gotta hand it to them in the rare case it turns out that way.

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