Looking for yet another costly federal program in need of
market-based reform? Put the National Flood Insurance Program (NFIP) near the
top of your list. It is a mess, and time is running out to fix it. As sea
levels rise and extreme weather events trigger inland flooding, NFIP offers
property owners insurance against flood damage at rates that do not come close
to reflecting the true risk of losses. It compounds the problem by insisting
that money it pays out in claims can be used only to rebuild in the same
flood-prone locations—not for moving to higher ground.
There are lots of ideas for a makeover of NFIP. One obvious
one would be to charge property owners full risk-based premiums. However,
owners resist that measure because it would crash the value of their
properties. Another reform would let owners use claims to rebuild in other,
safer, areas. However, local governments where the flood-prone properties are
located resist that idea because they would lose part of their tax base. Still
another idea is to buy out whole communities at fair, pre-flood prices and
rebuild them elsewhere. However, powerful realtor and builder lobbies resist
all these reforms.
Congressional committees have been working on promising
fixes. Reform proposals have been worked up to the point of being ready for a
vote. But—did I mention?—Congress has less
than two weeks to do something. NFIP expires at the end of September. The
pressure to reauthorize it without substantive changes will be overwhelming.
Here is some background reading if you want to pursue the
cause of building a market-based National Flood Insurance Program:
- SmarterSafer.org is a coalition that promotes risk-based insurance and risk mitigation efforts. Its website is a trove of information and links.
- The National Resources Defense Council has a great, short backgrounder on the need for flood insurance reform.
- An excellent article in The Atlantic by Michelle Cottle outlines the politics of flood insurance reform.
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