Flood Insurance

Since They "Built Where the Government Told Them," They Demand Government Flood Insurance Subsidies Be Restored


Flood Insurance

Congress may be about to repent its uncharacteristic act of fiscal rectitude and environmental protection by rolling back its flood insurance reforms from 2012. Prior to the reforms, government flood insurance program subsidies over the decades had encouraged lots of people to live, work, and build in flood-prone areas. Why not? It's really nice to live along the banks of a river or enjoy a sunset from the balcony of your oceanfront McMansion. And if a hurricane or flood knocks it down, cheap government insurance will pay for the rebuilding.

Eventually recognizing that the flood insurance program was a fiscal disaster and an environmental menace, Congress passed the Biggert-Waters Flood Insurance Reform Act. Yesterday, the New York Times reported:

The Biggert-Waters measure sought to reform the nation's nearly bankrupt flood insurance program, ending federal subsidies for insuring buildings in flood-prone coastal areas. Over the past decade, the cost to taxpayers of insuring those properties has soared, as payouts for damage from Hurricanes Katrina, Irene, Isaac and Sandy sent the program $24 billion into debt.

The aim of the measure was to shift the financial risk of insuring flood-prone properties from taxpayers to the private market. Homeowners, rather than taxpayers, would shoulder the true cost of building in flood zones.

Deficit hawks liked the idea because it would curb a rapidly rising source of government spending. Environmentalists liked the bill because they said it would reflect the true cost of climate change, which scientists say is ushering in an era of rising sea levels and more damaging extreme weather, including more flooding.

Well, that was last year. It turns out there was a reason why private insurance was not offering flood insurance to lots of the folks who were taking advantage of the government subsidized policies. The risks were too high for the premiums being paid. Who knew? From the Times:

But a year after the law passed, coastal homeowners received new flood insurance bills that were two, three, even 10 times higher than before.

In Beach Haven West, N.J., for example, Diane Mazzuca, a furniture showroom designer, had been paying $595 annually for flood insurance on her $90,000 home. After Biggert-Waters ended federal flood insurance subsidies last June, she got an updated bill — for $4,492….

Ms. Mazzuca has plenty of company. The insurance rate increases hit many of the 5.5 million coastal home and business owners covered under the National Flood Insurance Program, and came as the Federal Emergency Management Agency, which runs the program, was updating flood maps and placing thousands of homes inside flood zones for the first time. Last summer and fall, homeowners near coasts, rivers and wetlands saw their insurance rates soar and their property values plummet.

The homeowners' frustration erupted into a grass-roots lobbying campaign to roll back the Biggert-Waters act, and lawmakers in Washington quickly got the message.

For example, the pro-rollback interest group, the New Orleans-based Coalition for Sustainable Flood Insurance issued a press release arguing: 

To be clear, if Biggert-Waters 2012 goes forward unabated, hundreds of thousands, and perhaps millions, of Americans who have played by the rules, built where the government told them (emphasis added), maintained insurance, and never flooded will lose everything.

And so it appears that bipartisan majorities in the Senate and the House will be voting for the Homeowner Flood Insurance Affordabiiity Act. Did you catch that the National Flood Insurance Program is right now $24 billion overdrawn?

For more background, check out John Stossel's classic 2004 Reason article "Confessions of a Welfare Queen" in which the architect for his new oceanfront house tells him not to worry:

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.

Recall that one good definition of insanity is doing the same thing over and over yet expecting to get a different result. Sounds a lot like the normal operations of Congress.

Disclosure: I have bought flood insurance from FEMA for my cabin for the past 18 years.