Flood Insurance Reform Is Long Overdue

Hurricane Florence displaced thousands of homeowners and destroyed entire cities along the Atlantic Coast. But because of outdated policies, most consumers who were forced to flee their homes will be unable to use flood insurance to recover and rebuild their property. In the absence of a major flood reform bill, this exact scenario will play out after the next storm, and the one after that.

For decades, the National Flood Insurance Program has offered a one-size-fits-all approach to coverage for flood damages. This approach is grossly problematic, as property values and risk factors for flooding vary widely across the country. Yet, the NFIP, with over $20 billion in debt prior to Florence, distributes the same premiums to expensive coastal properties in the riskiest areas as low-risk inland residences located outside of floodplains. The NFIP must update its flood maps and issue risk-based rates – something the government has thus far been unwilling to do.

Repeated cuts to federal funding for flood mapping have resulted in maps that misrepresent not only the substantial risks to inland areas where flooding is just as perilous, but also the areas where the most flooding deaths occur. In fact, Hurricane Florence left a big chunk of noncoastal areas devastated and underwater. This is troublesome, since more than half of homes in the paths of Hurricane Matthew and Harvey last year did not have flood insurance partially due to antiquated flood maps that did not reveal true risk. Flood maps must be updated using 21st century technology to ensure homeowners are aware of the risk.

Still, better maps and tailored policies cannot provide benefits if homeowners are not encouraged to purchase flood insurance. The federal government has so far relied on banks to require homeowners to purchase flood insurance which has produced only spotty returns. Currently, banks only grant mortgages for properties in floodplains if they are insured for flooding under the NFIP. They also have to deal with legislation that is muddled and unclear, leaving banks vulnerable to fines. This uncertainty effectively defangs the government’s enforcement mechanism and leads to millions of uninsured houses.

Without proper protections in place, taxpayers are the ones bearing the brunt from these flood losses, especially when the government  makes payments on flood claims to same homes on a regular basis. While repetitive flood loss properties represent only 2 percent of the homes covered by the NFIP, they are attributed to about 30 percent of the flood claims paid over the program’s history.

These payouts end up being more expensive than if the government were to outright buy the house from the owner after repeated floods. For example, one home valued at only $70,000 was flooded more than 30 times in as many years, but at a $700,000 cost to the federal government.

Relief for flood victims – and from the NFIP inefficiencies – requires legislation that will level the playing field and open the market to private insurance providers. A more competitive array of insurance options will generate more affordable and tailored policies for consumers who do not benefit from the government’s one-size-fits-all approach.

Congress must recognize the dysfunction of the current NFIP and generate a legislative reform package that takes a long-view on disaster mitigation. Reforms must include requiring preventative measures like elevation projects for houses, building relocation, environmental restoration, and land-use strategies that guide growth away from hazardous areas. For example, FEMA cites findings that $1 invested in mitigation can yield between $5 to $7 in return. Building it right for resilience matters for consumers, and local mitigation plans should be encouraged.

The NFIP runs one of the biggest debts in the U.S. government at a time when turbulent climate could lead to more frequent and severe destruction from storm-surge flooding. For the sake of taxpayers and consumers, the U.S. Senate needs to prioritize reforming this stubborn system before the next hurricane takes aim at thousands of uninsured homeowners.

Krisztina Pusok is the director of policy and research and Steve Pociask is the president of the American Consumer Institute, a nonprofit educational and research organization. 

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