Our Flood Insurance Needs Repairs. Can We Fix It?
After Hurricane Harvey, Houston property owners joined the millions of Americans with uninsured losses. The National Flood Insurance Program isn’t giving the rest of us a reason to “buy in” anytime soon.
Flood. Repair. Repeat. This mantra — echoed by many homeowners in flood-risk areas — is most apparent in the records of the National Flood Insurance Program (NFIP). In Spring, Tex., for example, a home worth $42,024 has been repaired 19 times. These repairs come out to $912,732, nearly 22 times the home’s value.
Still, more Americans are risking uninsured damages rather than buying into an NFIP plan. Initial estimates have around 70% of Hurricane Harvey damages going uninsured. In a time when it’s needed more than ever, our country’s flood insurance is failing.
Current NFIP plans leave consumers with inadequate coverage, often at rates too expensive for them to buy. And a weak infrastructure doesn’t do the program any favors. Rapid development continues to outpace proper flood maps, making assessments of flood risk overwhelmingly disproportionate.
Developers understand these risks just as well as they ignore them. Subsidies given in the name of growth are more often used on repairs. As such, shoot-from-the hip investments from developers face few consequences, even in high-risk and poorly assessed areas.
Originally, policyholder premiums were designed to keep the program afloat. But poor coverage offers little incentive to insure. To pay the bills, the NFIP raised premiums, offering consumers even less of a reason to sign up.
This cycle of high costs and low participation has led the program to rely on large-scale bailouts and debt forgiveness. This year, Congress has already agreed to forgive the program’s $16 billion debt—a figure that excludes the billions pouring into Houston now and in years to come.
As it stands, the NFIP offers next to no benefit for its policyholders, the very people it’s designed to help.
Facing such a predicament, we might tend toward scrapping the program entirely, relying instead on private markets to take its place more effectively. This idea has gained traction, largely among fiscal conservatives.
No doubt, the agency’s subsidies are misguided, and its mounting debts continue to burden taxpayers. But there is little sense in destroying a program that is desperately needed in times of disaster (which are becoming more frequent by the month). Not to mention, private insurers can drop clients before hurricane season to limit their losses, a growingly common (and completely legal) maneuver. As such, blind faith in the private insurance market doesn’t exactly constitute a ‘plan’ in its own right.
So, if we’re not clicking the detonator just yet, where do we go from here?
Researchers at the Center for Climate and Energy Solutions (C2ES) have, at the very least, offered a proposal to keep the program alive.
Their plan would first adjust premiums to reflect the true risk of each property, with assessments beginning in known high-risk areas. Without proper premiums, the NFIP cannot survive. No doubt, increased premiums would immediately burden policyholders. But they wouldn’t go without help.
Policyholders would become the first priority of government subsidies. That is, the primary recipient of taxpayer dollars would be poorer, insured residents—often in their own zip code or town.
Plans with longer terms would also sustain the program into the future. Many residents buy flood insurance after a disaster. And if a disaster doesn’t occur in the near future, they don’t renew their policies. In other words, they incur the cost of uninsured losses up front, pay for flood insurance after a flood, and abandon their policies before the next disaster comes.
A long-term plan is not without its risks, though. An unreliable climate makes flood prediction a difficult task. A homeowner who buys insurance and sees a flood-less decade, for example, could be left with excessively high premiums that are not worth the risk she’s insuring against.
But incentives for mitigating measures would offer security for the NFIP and its policyholders. The C2ES plan would incentivize property owners to make improvements to their at-risk properties before flooding occurs. Residents who take out loans for improvements would receive a discount greater than the annual cost of their loan. This loan discount would incentivize even greater participation.
Certainly, a plan with so many contingent elements would be difficult to put in place as it stands. Countless re-workings and feasibility studies are necessary, and we are a long way from knowing the true merit of the C2ES plan.
But the Center for Climate and Energy Solutions is offering something desperately needed: the prospect of a way forward.
American flood insurance is in trouble, and without such proposals, it could drown.
