Flood Insurance: Mend It or End It, But Don’t Just Extend It

Before leaving for the August recess, the House of Representatives passed a bill (HR3139) to extend the authority for the National Flood Insurance Program (NFIP) until March 2010. The program was set to expire on Oct. 1, 2009. The bill now goes to the Senate. Instead of taking up HR3139, the Senate should insist on real reforms to the NFIP, rather then a blanket extension.


Since Hurricane Katrina, the NFIP has operated under a deficit of close to $17 billion, which had to be borrowed from the Treasury in order to pay claims. Under the NFIP’s current structure, it cannot even make the interest payments on its borrowing; these losses will ultimately hit the taxpayer. 


The Senate last Congress passed a strong reform bill that would have eliminated almost half of the subsidies in the NFIP. The House decided to instead seek an expansion of the broken program, adding wind coverage and raising the coverage levels (despite the availability of private flood insurance).


Many of the homes receiving subsidies under the NFIP are either vacation/​second homes or properties where the government has paid repeated claims. In one instance, a house in Houston this is valued at around $100,000 received over $800,000 in flood insurance claims over a 20‐​year period, before it was finally destroyed. 


Not only does the NFIP subsidize at taxpayer expense beach‐​front vacation homes, but there is growing evidence that the program causes substantial harm to the environment and local fisheries. Just last year, the National Marine Fisheries Service issued a finding that the NFIP is pushing orcas and some runs of salmon to extinction. Before the federal government forces significant costs on the private sector to protect the environment, perhaps it should take a close look at the damage its own activities inflict.