A Bit Of Insanity: Government Spending On Flood Insurance

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When flooding occurs at least 26 times per year on more than 10% of a community’s usable land, it’s called “chronic inundation.” To attempt the cleanup and restore an area subject to chronic inundation area would act out Albert Einstein’s definition of insanity. As stated: “Insanity is doing the same thing over and over and expecting different results.”

Nevertheless, 90 U.S. communities already experience chronic inundation. The Union of Concerned Scientists  predicts that 490 communities will face chronic inundation by 2100, including 40% of East coast and Gulf coast communities. As a consequence of ice sheet melting, global sea levels are expected to rise by one foot by the end of this century, but warns that in the worst-case scenario, global sea levels will rise by 8.2 feet.

Sea level rise is not the only peril that coastal areas face. The annual hurricane season brings a combination of destructive winds and storm surge that damage properties and threaten residents who elect to stay in harm’s way during the storm.

Water threats are not limited to sea level and hurricane storm surge. As rain and snow melt fills rivers through flat-lands in the upper Midwest or into rivers draining the snow pack of mountains, or as heavy rain overflows in mountain streams, the nearby communities are regularly flooded. The experience is destructive and life threatening, but most river flooding is predictable.

The National Flood Insurance Program (NFIP) offers flood insurance coverage to homeowners, particularly those who live in areas that are at some risk of flooding. Some homeowners purchase the coverage, and some do not, but FEMA and NFIP often provide financial assistance to those who do not pay premiums.

The NFIP uses flood plain maps to gauge the degree of risk it faces when providing flood damage coverage. Unfortunately, its flood maps are woefully inaccurate and in need of revision. In addition, Congress often meddles in setting actuarially justified rates by limiting premium increases. NFIP chronically runs a loss mostly due to premiums that are too low.

Taxpayers should take note. The NFIP’s accumulated losses are around $25 billion, and that comes despite a $16 billion forgiveness late last year. And, we should expect the same failing fiscal results over and over again, until Congress replaces sound policy for insanity.

There are several changes that need to be made. For starters, flood plain maps need to be made accurate, and insurance rates need to become actuarially sound, not unjustified political subsidies. Furthermore partnering with private sector insurers may breathe fresh life into NFIP’s failing practices. Policymakers need “willing” private sector insurers to provide flood insurance as an alternative for homeowners. Putting private sector capital at risk makes for good flood policy.

To their credit, FEMA and NFIP have lately been promoting the idea of reducing flood, wind and fire damages through some sensible principles and active steps to mitigate risks. For storm surge, a clutch of suggested investments in better-than-code construction return $7 for each $1 invested. For wind perils, other specified investments beyond construction code yield $5 for every $1 invested. Policymakers should pay attention to these facts when updating local construction codes.

Some local governments have developed and adopted risk mitigation plans that are required by the FEMA so that the community can be eligible for pre-disaster and post-disaster mitigation funds. The prospect of cheaper restorations due to risk mitigation investments may lure Congress to command NFIP to make those investments on behalf of people living in flood-prone areas. One Senate bill proposes loans for mitigation to homeowners in these areas.

River and coastal flooding of business and residential properties are not a surprise. It happens almost regularly. We can mitigate risks by elevating buildings on stilts, or we can try to build a protective dyke around some habited areas, or we can move to higher ground. What we cannot do is pretend that government can afford to rebuild flooded buildings over and over. This was the case when one home was flooded 34 times over a 32-year period, at a accumulative NFIP cost of $668,000. The value of the home was just $70,000.

Communities that enjoy the beauty of coastal and river settings need to relocate or invest in flood mitigation. Long before that task is done, the federal government will admit it can no longer afford to subsidize chronic rebuilding of flooded properties. You don’t have to be an Einstein to know that it is just insanity to expect a different result.

Alan Daley and Steve Pociask write for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.