Changes are probably coming next year for the National Flood Insurance Program, and coastal property owners should tune into the debate that will shape those changes.
The program, which is the only option for coastal property owners needing insurance against rising water such as hurricane storm surge, is up for reauthorization in 2017.
Lawmakers and consumer advocates already are discussing ways to correct what many see as serious flaws in the federal program.
It’s clear that flaws do exist. The program is more than $23 billion in debt, largely because of claims from hurricanes Katrina and Sandy, and on damage to properties that have repeatedly flooded in weather events far less dramatic than those two epic storms.
Congress has passed a series of reforms in recent years to address the program’s debt, including passing legislation to reduce subsidies on properties, which were keeping rates artificially low.
But there’s little appetite to continue to raise rates to levels that would cover the risk, Phyllis Cuttino, director of Clean Energy Initiative and Flood-prepared Communities at The Pew Charitable Trusts, told The Daily News recently.
At the time same time, however, lawmakers are under pressure for reforms that would reduce the program’s risk from properties that repeatedly flood, that would increase awareness about flood-damage prevention and would encourage private insurers to enter the market.
The basic problem is pretty simple and familiar to people who’ve kept up with news and debate about the Texas Windstorm Insurance Association.
Under both programs, high-risk policies are pooled with a single payer — the government or some quasi-governmental agency like the association — responsible for claims.
Pooling high-risk policies undermines the whole concept of collective insurance, which is to spread risk so widely nobody gets more claims than can be covered by premiums and other revenue.
Results have been predictable, especially in the flood program, which several times since is was formed in 1968 has been forced to call on the taxpayers for billions to cover what it couldn’t cover with its own funds.
There are only a few ways to fix the program. One is to set premiums high enough to cover the program’s real exposure.
That’s impractical to the point of being impossible because the rates probably would become too high for most people to afford before they ever got high enough to cover all the concentrated risk.
Another is to spread the risk by getting private insurance companies to write flood polices in high-risk areas along the coasts and in other flood-prone areas such as along the Mississippi River.
Lawmakers should keep in mind that runaway premium rate increases would devastate coastal economies by strangling real estate markets and displacing workers no longer able to afford housing in those areas.
It also would force more property out of insurance and into the taxpayers’ pockets through federal disaster aid programs, into which hundreds of billions have been invested after hurricanes in just the past 15 or so years.
The more property that stays insured, the better off everyone will be, including the taxpayers.
At the same time, those depending on the federal flood program need to recognize the need for reform and support efforts to enhance and enforce building codes meant to mitigate flood damage and to find ways such as buyouts to deal with properties that repeatedly flood.
• Michael A. Smith