Tuesday, August 30, 2011

Ye Olde Flood Insurance Lament

Oh, woe is the taxpayer who is unjustly coerced into subsidizing the National Flood Insurance Program! Why must those Americans who engage in risky behavior be sheltered from risk. It's like "a special program to offer subsidized health insurance to people who refuse to wear seat belts!"

Like a train that is never late, we expect to see national pundits question the amount of government spending while reacting to natural and man made disasters involving water. Though I'm more used to hearing such business from the Ron Paul wing of suicidal libertarianism than to hear it from the pages of Ezra Klein's blog, the Daily Dish, and Think Progress.

Maybe even the left needs a hard lesson in losing money in order to save money. Yes, the Feds lose money on subsidized flood insurance. Yes, if the nation didn't subsidize flood insurance, people, businesses, and industry would pay higher premiums to live in flood-prone areas. Yes, we ought to figure out better ways to mitigate damage to lives, property, and finances.

But don't ignore the facts. Almost everywhere humans live in this nation are flood-prone. Some of the most flood prone areas are the areas where there is the highest utility for commerce.

Right now, whole parts of the Northeast are underwater. Earlier this year, the Midwest was underwater, and the Mississippi River was closed due to flooding. In 2009, there was flooding in the upland South. Further stretching the "people ought not live in flooding areas" credibility were this year's flash floods in Arizona, an arid state that spent most of its disaster money on wildfires. Happened last year, too.

The National Oceanic and Atmospheric Association (NOAA) estimates that the US economy took a $35 billion hit from natural disasters in 2011 (including flooding), and that was before Irene flooded New England. That total adds up to an estimated $750 billion cost to the US since 1980, and that's the conservative estimate.

I know folks like to think it can't happen to them, and that cutting off the Federal subsidy for flood insurance will keep those pesky individuals in the "moocher class" from taking advantage of living near rivers and oceans and lakes and creeks and, well, anywhere 2 inches of rain in an hour can collect, run downhill, and sweep away cars and homes. But that would raise the costs of every commerical activity in the United States of America.

Fix the levees. Raise the homes and businesses. Fund the program more robustly. Respond more effectively to disaster situations. Prepare more effectively for disaster situations. Mitigate the risks as best we can. By all means, let us have a serious conversation about the costs of flooding in this nation.

But you start that conversation asking why NFIP costs so much. Because the answer to that question will tell you exactly why the country is willing to take a loss to cover the cost, and the only people who question that are pundits with an agenda.

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3 comments:

Dante said...

"Maybe even the left needs a hard lesson in losing money in order to save money. Yes, the Feds lose money on subsidized flood insurance. Yes, if the nation didn't subsidize flood insurance, people, businesses, and industry would pay higher premiums to live in flood-prone areas. Yes, we ought to figure out better ways to mitigate damage to lives, property, and finances."

We've had this discussion regarding flood insurance before (in the tail end of the comments, not the main article). We don't need to look for better ways to mitigate damage. We already found it. We started using it back in 1981 and it's been self-sufficient since 1994. It's called the Flood Insurance Rate Map (FIRM).

But the federal government only uses FIRM for property built after the maps were created. The roughly 25% of pre-FIRM properties are where all of our National Flood Insurance losses are coming from. We need to get all properties on FIRM rates. I understand not wanting to make that jump all at once but it's been 30 years! We need a plan in place (maybe gradual rate increases and/or grandfathering current property owners for X years) that converts everyone over from a program that leaks money like a sieve to a program that's financially independent.

Cousin Pat from Georgia said...

Thing is, these pundits aren't talking about more effective ways to mitigate risk, they're talking about this being wasteful spending, and even the numbers from that earlier thread demonstrate just how good a deal we get from those subsidies.

But the federal government only uses FIRM for property built after the maps were created. The roughly 25% of pre-FIRM properties are where all of our National Flood Insurance losses are coming from.

Isn't that the "grandfather" clause? That's where I would expect most of the losses to come from by design. To my knowledge, people occupying such properties must rebuild according to the new rules after a loss, and new construction has to take those rules into account.

That might be making it cheaper in the long run so the country doesn't have to subsidize all the risk mitigation in one bite, and we've seen how difficult it is to pass government grant programs that would assist people in mitigating risk on their properties.

For example, I think there was/is considerable grant money made available in Louisiana to elevate pre-FIRM homes. It is an expensive program, and by no means universal, but every property issue addressed before the next flood will be less money lost to the NFIP.

In another example, my parents live in a pre-FIRM home. If it is ever demolished (by man or nature) and rebuilt, any new construction has to adhere to the new standards.

Cousin Pat from Georgia said...

(For those of you looking for the thread Dante referenced, here's the quote:)

Good link. I'll have to keep going through that tomorrow.

But just from the quick overview, and your numbers (which appear, at my glance, correct), this means all taxpayers are paying (yearly) $1.3 billion to support a program that, combined with the premiums that don't lose money, insures roughly $800 Billion worth of total property.

I did not see (in my cursory overview) an economic impact study of how much that $800B worth of property affects the overall economy, but I'd take a guess that it is a significant impact.