OUR OPINION: Flood insurance: A problem ripe for solution

Irene hammered so many homes in Vermont that the governor can't yet estimate the damages. Authorities still are trying to restore power to towns affected by the state's worst-ever flooding, making any kind of damage estimates "like going to Las V...

Bridge out in Vermont
A bridge on Route 73 lies in the river in this aerial view on Tuesday, Aug. 30, 2011 in Rochester, Vt. All access to the town has been cut off. National Guard helicopters rushed food and water Tuesday to a dozen Vermont towns cut off by flooding from the rainy remnants of Hurricane Irene in a deluge that took inland areas of New England and upstate New York by surprise with its ferocity.(AP Photo/Toby Talbot)

Irene hammered so many homes in Vermont that the governor can't yet estimate the damages. Authorities still are trying to restore power to towns affected by the state's worst-ever flooding, making any kind of damage estimates "like going to Las Vegas," he told Vermont Public Radio.

But here's one statistic you already can take to the bank:

According to the Los Angeles Times, the state had only about 3,600 federal flood-insurance policies in effect.

The National Flood Insurance Program expires at the end of the month. Coupled with the damages from Irene and Midwestern flooding earlier in the year, here's hoping the losses and pending expiration amount to a perfect storm, one that prompts a bipartisan effort to develop much-needed reforms.

The House already passed a reform bill as part of a five-year reauthorization plan. The House bill "would set actuarially sound premiums, reduce current rate subsidies, improve flood area mapping, call for the Federal Emergency Management Agency to study incorporating private insurance and increase coverage for homes and commercial buildings," McClatchy Newspapers reported.


But that lineup of changes leaves one huge gap: making sure more homes have flood insurance.

In fact, the reforms might just make the situation worse, because one root of the problem today is that too few Americans buy flood insurance. That's the situation in Vermont and elsewhere.

And it's true even though the federal government subsidizes flood-insurance premiums, making the policies much cheaper than would be available on the private market.

Given that fact, what's going to happen when rates rise to "actuarially sound" levels, as the House bill directs?

The answer: Even fewer people would buy flood insurance. That's the exact situation that existed in 1968 and led Congress to create the NFIP in the first place.

Still, the House bill likely is on the right track. (The bill passed by a vote of 406-22; Reps. Rick Berg, R-N.D., and Collin Peterson, D-Minn., both voted for it.)

For higher premiums are needed to fix the other half of the flood-insurance program's problems: the fact that it's running a huge deficit.

With its below-market-rate premiums, the NFIP isn't meant to make a profit; but in the 1980s and 1990s, at least it was able to cover most of its costs. Then came the series of costly disasters beginning with Hurricane Katrina, a series that has left the program more than $17 billion in debt.


And of course, that illuminates the paradox, the one that dogs every discussion of flood insurance policy: How can a program that's priced below market rates not only lose money (as might be expected), but also fail to cover anywhere near the number of vulnerable homes?

That's the question. And before the U.S. Senate takes up the House's proposed reform, a Senate committee or perhaps a bipartisan commission should answer it.

Some other groups have started to do so. Importantly, their ideas cross partisan lines, suggesting that comprehensive flood insurance reform might be something on which Republicans and Democrats can agree.

The conservative American Enterprise Institute is the latest example. For one thing, "Managing Flood Risk" -- the institute's new study -- acknowledges that flood risk "is difficult to insure in the private market." In a nutshell, flood risk varies by location, and too few homeowners insure even high-risk homes to let insurers charge affordable rates.

So, one answer might be "to have the federal government require that all property owners purchase flood insurance in the private market," the Institute declares. Ponder that idea from the AEI in the light of conservative objections to America's new health-insurance mandate. You'll see that flood risk forces analysts out of their usual ideological boxes.

Others say that the government should start treating flood risk like fire risk and theft risk, making it a fact of life that homeowners -- not taxpayers - must address.

Just as the flood insurance program needs reform, America needs a problem that can be solved in a bipartisan way. It's time for those trends to meet and for Congress and the president to tackle this difficult but not impossible problem.

-- Tom Dennis for the Herald

Opinion by Thomas Dennis
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