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Fix Flood Insurance Before It Swamps The Federal Budget Again

By Drew Bond

As 2020 opened, few people understood the coming risk of a global pandemic. More than six months later and we’re still trying to overcome a disaster we couldn’t see coming.

However, not every disaster is this unexpected. Consider the growing threat of looming hurricanes and floods due to a combination of climate change and overdeveloped communities with underdeveloped infrastructure.

It’s tempting to assume that the danger is linked to particular locations. If you don’t live on the coast or next to a stream or river, you may consider yourself safe from flood waters. But that is not the case.

The Federal Emergency Management Agency (FEMA) is in charge of responding to flood damage. It turns out that FEMA has undercounted the number of properties that have “substantial risk” of flooding by nearly 6 million, or 70 percent, according to a new report by the First Street Foundation. The group uses available government (state and federal) information in an effort to provide more information and transparency to homeowners in America about their near-term and future flood risks.

The first question you should ask, of course, is: “Am I at risk?” If you go to their free online tool called “Flood Factor”, you can search your address and find out.

The next question should be: “How can our country mitigate that risk?” This is the more difficult question, because doing so will require large changes in federal policy.

Virtually all flood insurance for homeowners and businesses today is provided through a federal government program called the National Flood Insurance Program (NFIP). That means that while all of the decisions are being made in Washington, DC, the risk is on the American taxpayer. 

So, even if you don’t live on a barrier island in the Atlantic but instead in the dry expanse of the Arizona desert, you’re on the hook for flooding anywhere in the U.S. Even worse is that NFIP is $36 billion in debt, and that amount increases each year. Note: Expect that amount to eventually be written off, which Congress has done time and time again, an accounting trick that means the federal government moves the debt from this generation to the next.

This makes no sense. If we want the federal government to have resources available to fight COVID-19 and other real disasters, and better yet, to invest in economic growth areas like energy innovation and our manufacturing competitiveness, we need to reduce its commitments to money losing programs like federal flood insurance.  

A key step is to bring private insurers back into play. Just as individual homeowners insure their dwellings against damage from trees or fires, they should also be bearing the burden of insuring their dwellings against flooding.

“The ultimate solution is to eliminate the subsidies and other giveaways that secure the government’s flood insurance monopoly,” The Heritage Foundation explained a few years ago. “Private insurers are interested in underwriting wide swaths of properties in flood zones. The benefits of phasing out the NFIP are reflected in the differences between the government-run program and the private sector.” In other words, if the government would get out of the way, the private sector would step up.

Something like this is already happening in flood-prone Florida, where private insurance companies are writing policies in high-hazard areas. It would introduce fairness into the process, as people in high-risk areas would pay more for flood insurance and people in lower-risk areas would be able to pay less. Insurance companies could then share risks by using reinsurance policies.

Of course, success would also require greater federal transparency. The public needs access to flood records and risk ratings so customers and companies can understand what rates in various places ought to be.

We can’t just keep throwing good money after bad, based on outdated information and poorly designed public policies. Unfortunately, Congress just kicked the can down the road again on NFIP reform. Taxpayers deserve better. With more people at greater risk of flooding, Congress needs to act now to reform this costly and ineffective program and encourage private sector solutions that protect all of us.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.

Copyright © 2020 Conservative Coalition for Climate Solutions

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