The Washington Times awarded Congress its Golden Hammer last week for its failure to fix the National Flood Insurance Program (NFIP)-a distinction given by the paper to examples of fiscal failings and abuse of taxpayer money.
Originally designed to offer an insurance alternative for property owners in high risk areas, the National Flood Insurance Program “has accrued $24 billion in debt, highlighting structural weaknesses in the program and increasing concerns about its burden on taxpayers.”
As the paper noted, common sense solutions exist, namely “eliminating government subsidies” and “having private property owners-not taxpayers-foot the insurance bill.”
“If the government raises premiums to be closer to market levels, private companies might be more willing to provide insurance. Or the government could subsidize the insurance for only the lowest-income individuals, leaving more well-off people to purchase their own coverage in flood-prone areas.“
However, instead of working to make the program financially solvent, the U.S. Senate has passed a bill delaying its 2012 reforms, which would have made property owners pay a larger share of their insurance costs. If successful, experts predict the delay will only accelerate the program’s insolvency and heighten the cost to taxpayers.
Congress’ skittish retreat showcases a very common obstacle in the regulation of the insurance industry. Property owners have every incentive to socialize their risk of flood and storm damage among taxpayers, so legislators face constant pressure to keep the real costs of subsidized insurance hidden.
This is also one reason why Texas’ own windstorm insurance program is woefully underfunded with only $2.6 billion available to cover $81 billion in direct and indirect exposure.
The Washington Times, however, has it right. Government subsidies disrupt the insurance market, raising costs, encouraging risky behaviors, and forcing private insurers out of the market-all to the detriment of taxpayers. Legislators, whether they sit in Washington or Austin, should not force taxpayers to bear the costs for the choices and risks of others.