Since its enactment, the National Flood Insurance Program has accrued $24 billion in debt and has been acknowledged by both parties as being fiscally unsustainable. Nevertheless, not two years since Congress approved landmark legislation designed to reform the program, lawmakers stand poised to undercut all past efforts at lifting the program out of the red.
Mary Kissel at the Wall Street Journal explains:
The National Flood Insurance Program is $24 billion in debt because it charges below-market premiums and was blown sideways by Hurricanes Katrina and Sandy. The 2012 Biggert-Waters bill aimed to move the NFIP toward charging actuarially sound rates over a period of years and encourage private insurance companies to shoulder more of the risk.
Cue the panic. Realtors and homebuilders, worried that higher rates would slow sales and new construction in lucrative coastal areas, lobbied hard against the law…. And the national media dug up scare stories to further pressure the House to do something.
But, as Kissel observed, the political U-turn is far from a celebratory event.
“The 306 House members who voted for the reform rollback Wednesday night will trumpet the vote, and eventual law, as a victory for property owners. It's really a free lunch for subsidized NFIP policy holders, paid for by federal flood insurance customers who live in other, less dangerous parts of the country, and ultimately backed by every American taxpayer. Some victory.”
We couldn’t say it better ourselves. The Biggert–Waters Act brought much-needed (and sensible) reform to the National Flood Insurance Program that would have simply brought the program in line with basic actuarial principles. To retreat now would not only undermine a serious attempt at fiscal responsibility but also increase the costly burden on taxpayers of subsidizing coastal developments.
We are hardly surprised by Congress’ speedy retreat. Elected officials, whether state or federal, will always feel pressure to socialize the risks and costs of coastal development. Likewise, constituents who live and work disaster prone areas will always have the incentive to demand subsidies that underwrite their lifestyles—this is one reason why Texas’s own windstorm insurance has accumulated an exorbitant amount unfunded exposure liability.
Congress may not stand firmly behind its 2012 commitment to fiscal discipline, despite the relief it brought to taxpayers and bipartisan recognition of the need for reform. Only time will tell if the Texas Legislature can undertake lasting reforms to the state’s windstorm insurance program.