HURRICANE INSURANCE SUBSIDY
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 Sams
"The National Flood Insurance Program (NFIP) is the Federal Emergency Management
Agencys 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
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
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
Their conclusion is,
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 nations waterways?
At the very least, it seems that FEMA should end subsidizing the NFIP
premiums for any insured property owners. And it may be a good idea for the states (which
control land use) to prohibit construction within floodplains, or require any owner of
property located in a floodplain to carry insurance to reimburse public agencies for
emergency services when floods do occur."
The political attraction to continue cheap government waterfront insurance has property
owners flocking to buy up and build their dream house. This is probably the costliest
boondoggle that benefits the upper middle class and the affluent. Human nature, being what
it is, even the purest, as John Stossel, knows a good deal when it is dangled in his face
by a seductive government.
So what is the alternative, only high-rise condominiums with expensive maintenance fees
owned by offshore tax dodgers? Let us hope that the cherished tradition of individual
property ownership is the standard that is protected by all government jurisdictions.
However, perpetuating the incentive to willingly build in harms way, where personal
financial risk is substituted by government guarantees that reward imprudent decisions,
needs to change.
The rush to federalize disaster aid and transfer funds back into state coffers is
symbolic of the obscene distortion within national taxation. As long as individual states
must balance their yearly budgets and the federal government persists with unfunded
deficits, individual states will gladly take the bribes and handouts.
Disasters are part of life. There is no warranted absolution from calamites. Insurance
that is fairly priced, and rigidly administrated is a system that has provided relief from
great suffering and pain. Nevertheless, the business of insurance should be a private
contract among willing participants.
If the cost to insure is too high, just maybe the economics of ownership is too steep
to continue to support the lifestyle.
The collectivist proponents of big government continue to spread
their confusion and prevarications. The Hill reports in Democratic
leaders say FEMA has enough cash for Sandy recovery.
"FEMAs coffers are nearly full because the storm struck at the beginning of
the fiscal year, which started Oct. 1.
On top of more than $1 billion left over in the Disaster Relief Fund from last year,
Congress has appropriated $7.1 billion for fiscal 2013. President Obamas decision to
make disaster declarations in New York and New Jersey in addition to emergency
declarations in eight other states and the District of Columbia allows local
officials to access those funds immediately."
Disaster relief can be compassionate and supportive. Even so, the practice of
subsidized federal flood insurance only encourages the extent and degree of future
disasters. Lacking common sense is a national condition. Building on high ground is the
prudent course for action.
is the pen name of a reformed, former political operative. This pundit's formal
instruction in History, Philosophy and Political Science served as training for activism,
on the staff of several politicians and in many campaigns. He is a past columnist for
"Published originally at EtherZone.com :
republication allowed with this notice and hyperlink intact."
SARTRE can be reached at: BATR@batr.org
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the November 11, 2012 issue of
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