LUNACY OF FEMA
HURRICANE INSURANCE SUBSIDY

By: SARTRE

One of the most ludicrous fantasies of the self-indulgent is that a property owner has an entitlement of subsidized government flood insurance. The inherent risk of building along the ocean shoreline is self-evident. The benefits that enhance the pleasure of proximity to the seaside seem unending. However, when the forces of nature thrust her fury and a wall of water inundates pristine dwellings, the first question asked after the storm usually involves rebuilding. The cost of repairs and renovated construction, once paid by private insurance, now normally requires a federal guaranty.

James Bovard made some salient points just after Katrina in Uncle Sam’s Flood Machine.

"The National Flood Insurance Program (NFIP) is the Federal Emergency Management Agency’s crown jewel. Unfortunately, the heavily subsidized insurance bribes people to scorn common sense, damages the environment, and creates staggering liabilities for taxpayers. Federal flood insurance illustrates how selling at a loss can be politically profitable.

The primary effect of federal flood insurance is that far more property is now damaged by floods than would have occurred if the insurance had not made it possible to build in flood-prone areas. The Long Island Regional Planning Board in 1989 complained that federal flood insurance "in effect encourages a cycle of repeated flood losses and policy claims." And, especially in places like Long Island, the program underwrites the vacation homes of the wealthy."

Now that Sandy made her presence known, many of those aforementioned Long Island properties were washed into the sea. Would anyone believe that federal guarantees have any premium correlation to the actual costs of such disasters? The current disconnect between subsidized costs for NFIP flood insurance and the enormous expense for reconstruction is beyond imagination.

The libertarian and media celeb, John Stossel relates his personal experience in Taxpayers Get Soaked by Government's Flood Insurance. One factor in building his beachfront property on Long Island was that government insurance provided the guarantee necessary to qualify for a mortgage.

"Should a big storm wipe out half the coast, you'll cover our losses — up to a quarter-million dollars. Thanks — we appreciate it — but what a dumb policy.

The insurance premiums were a bargain. The most I ever paid was a few hundred dollars. Federal actuaries say if the insurance were realistically priced, it would cost thousands of dollars. Why should the government guarantee water's-edge insurance? Why should the government be in this business at all?"

Mr. Stossel has the knack for boiling down the complex into the common dominator. If private underwriting is not willing to cover the obligation of the risk, at a NFIP discount premium, maybe the insurance is too cheap. The Century Housing organization in Should Taxpayers Subsidize Property Owners in Flood Areas?, states: "Private insurance companies provide almost no flood insurance, because the insurance industry recognizes the huge risks."

Their conclusion is,

"The bottom line is that the taxpayers subsidize the development of property located in known floodplains. And that raises the question of whether that subsidy is good public policy, or whether the whole approach to flood emergencies should be changed. Would we all be better off if we ended the NFIP and instead provided short-term subsidies to floodplain property owners to move out of the danger zone, avoiding the inevitable loss of property and lives that occur so predictably along the nation’s waterways?