Can Congress Reform the National Flood Insurance Program?
Hurricanes, overflowing rivers, rising sea levels and more intense rainstorms have all increased flood damage in recent years. As the principal provider of flood insurance, the National Flood Insurance Program is increasingly in debt. A recent post by Craig Poulton who administers the private Natural Catastrophe Insurance Program argues that Congress should transform the NFIP from a monopoly to an insurer of last resort. While Mr. Poulton has an interest in expanding the private flood insurance market his point is well taken. The question is whether Congress has the will to reform the NFIP.
Mr. Poulton recommends five reforms:
- Meaningful rate increases. The problem: Congress did direct the NFIP to increase rates in 2013 by 5-25% annually. However, by 2017 overall rates had decreased.
- Reduce the number of properties with repetitive losses. Rebuilding in a flood plain without mitigating the risk fits the classic definition of insanity. The only ways to stop it may be zoning laws or declaring such properties uninsurable.
- Use new rates to determine flood risk with the goal of funding 100% of expected losses. The question is whether Congress can resist pressure against imposing higher rates.
- Create accurate flood zones. A recent CoreLogic report found 23% of homes nationally, and 54% in Florida, are at high or moderate flood risk but outside FEMA flood zones. New flood maps showing the increased risk could lead to more purchases of flood insurance.
- End NFIP rules that discourage transferring to private insurance. While desirable, there must be a positive reason – lower premium or broader coverage – to switch to private flood insurance.
To change the NFIP into an insurer of last resort, its rates must be allowed to increase while at the same time private insurers must provide better coverage. We also need a public policy that without proper construction to mitigate damage no buildings will be allowed in a flood zone.Some risks are truly uninsurable.