More Flood Insurance Follies in Congress


Flood insurance

As it happens I just paid the annual premium for my taxpayer subsidized flood insurance on my cabin. It would be churlish of me to refuse such a generous gift from my fellow citizens, wouldn't it? In any case, Congress wants to make sure that the largesse keeps coming and that our government continues to encourage people and businesses to locate in areas prone to flooding. As the Washington Post reports:

Hundreds of thousands of homeowners facing higher federal flood insurance premiums under reforms passed last year would win a one-year reprieve under a measure that began its advance through the Senate on Tuesday.

The temporary relief would go to homeowners in low-lying areas of Louisiana, Florida and other states where new government surveys could produce flood insurance premium in­creases so big that the homeowners might be no longer able to afford their homes.

At issue are homeowners whose flood insurance bills have historically been "grandfathered" at lower rates since they followed the rules in place at the time they bought or built their home. Under last year's bipartisan overhaul, many of these homeowners face higher premiums when new flood maps are issued….

Tuesday's legislation would provide relief to people whose older homes were built to the flood code in previous years or decades ago but would be judged to be at greater risk under new flood maps. Higher rates on these grandfathered homeowners would otherwise start taking effect late next year, and some homeowners face multi­fold premium increases that could make their monthly payments unaffordable.

"These home and business owners played by the rules, purchased properties that were up to code and are now facing exorbitant rate hikes," said Sen. Mary Landrieu (D-La.), author of the provision. "Flood protection is not just about business and commerce or numbers on a table. It is about a culture and a unique and treasured way of life that is certainly worth preserving."

Not about business and commerce? Sigh. Some good news is that flood insurance rates for…

…businesses in flood zones and homes that have been severely or repeatedly flooded will go up 25 percent a year until the rates represent the "true risk" of flooding.

That's if Congress can bear to let them go up. Given this latest moratorium on rate hikes, that doesn't look promising.

In his 2004 Reason article, "Confessions of a Welfare Queen," television journalist John Stossel explained:

In 1980 I built a wonderful beach house. Four bedrooms—every room with a view of the Atlantic Ocean.

It was an absurd place to build, right on the edge of the ocean. All that stood between my house and ruin was a hundred feet of sand. My father told me: "Don't do it; it's too risky. No one should build so close to an ocean."

But I built anyway.

Why? As my eager-for-the-business architect said, "Why not? If the ocean destroys your house, the government will pay for a new one."

What? Why would the government do that? Why would it encourage people to build in such risky places? That would be insane.

But the architect was right. If the ocean took my house, Uncle Sam would pay to replace it under the National Flood Insurance Program. Since private insurers weren't dumb enough to sell cheap insurance to people who built on the edges of oceans or rivers, Congress decided the government should step in and do it. So if the ocean ate what I built, I could rebuild and rebuild again and again—there was no limit to the number of claims on the same property in the same location—up to a maximum of $250,000 per house per flood. And you taxpayers would pay for it.


How to unravel this situation? As I reported a couple of years ago, a proposal by the Competitive Enterprise Institute seems reasonable:

The free market Competitive Enterprise Institute offered some reform proposals in 2008 which featured (1) land buyouts for propeties in the most flood-prone areas, perhaps converting them to public parks; (2) some policies would likely have value in private insurance markets, so sell them off; and (3) and phase out NFIP entirely by offering one time tax credits or grants to cover the declines in property value that terminating flood insurance might cause insured property owners.

By the way the National Flood Insurance Program is $24 billion in the hole and counting.