Troubled Waters

Flood insurance washes out

The federal National Flood Insurance Program, like a private insurance company, charges premiums and pays out when disaster strikes clients. Unlike a private insurance company-or at least one that hopes to stay in business-it has been paying out far more than it collects. This leaves, as an October report from the Government Accountability Office put it, "much of the financial risk of flooding is transferred to the federal government and ultimately the taxpayer."

The program is, after Hurricanes Katrina and Sandy, $24 billion in hock to the federal government. It currently has more than 5.5 million policies, with an insured value of about $1.3 trillion. It collects about $3.5 billion in premiums a year.

The report concludes that the Federal Emergency Management Agency, which is responsible for the program, "must establish full-risk rates that reflect flood risk for active policies…but it does not have a plan to do so." One radical idea the study floats to save money is to offer its assistance "based on the financial need of the property owners."