As residents along the Gulf Coast and Puerto Rico are working to repair their homes, many are relying on the National Flood Insurance Program.
But the program itself is under a new round of scrutiny by members of Congress. Since it was established in 1968 to help homeowners living in flood-prone areas that private insurers wouldn’t cover, the program has never been on steady financial footing. In fact, through the years, the program has consistently required subsidies from the U.S. Treasury to keep it afloat.
While few members of Congress would call for the abolition of the program, some are calling for changes that would encourage more private market policies.
To achieve that end, it would mean raising the government’s flood insurance rates to allow private insurers to be competitive. While President Donald Trump and Democrat leaders reached a deal to reauthorize the program in the short term, the issue and other big decisions, will need to be decided in December.
It’s going to be a sticky issue for lawmakers.
On the one side, there is the concern that raising the insurance rates would be more than some homeowners could afford. On the other side, just how long can government keep subsidizing insurance for homes in flood-prone areas, such as Houston and Galveston County.
Former President Obama signed into law a major overhaul of the flood insurance program in 2012. Included in that law was eliminating subsidies for homes that are repeatedly damaged by flooding and a hike in insurance prices. Facing pressure from some homeowners and their congressional representatives, Congress and Obama two years later passed another law that effectively undid the 2012 measure.
One problem, many officials have noted, is that too few property owners who need the insurance are buying it. In Houston, less that one in three houses in flooded areas had the insurance. Another problem is that construction has continued in low-lying areas, a practice proponents of overhauling the program say encourages more people to build in flood-prone areas. The government then is forced to rebuild their homes after every flood at taxpayer expense.
It’s clear, though, that the program is not working the way it was intended.
When it was enacted in 1968, many policymakers argued the lack of private-sector flood insurance was a market failure that should be corrected by the government. However, the only way to make insurance affordable was to subsidize premiums, which has led to the financial jam the program is in.
Through the years, there have been attempts to reform the program. Very little progress has been made, though.
While it is important to have insurance to cover floods, it’s just as important to have a program that isn’t as draining on the U.S. budget.
• Dave Mathews