As hurricane Earl roared along the Atlantic coastline and other storms swirled behind it, millions of Americans looked to Washington to subsidize any repairs from water damage. A new liberalized National Flood Insurance Program is in the works. It is sponsored by the controversial Maxine Waters (D-Calif) who, on Sept. 3, told constituents she would urge the Senate to approve her House-passed bill to extend the program another five years.
The program already is drowning in close to $19 billion of debt. Another reckless federal step toward national bankruptcy is on its way.
Waters’ legislation raises the maximum damage coverage limits, provides notice to renters about necessary insurance coverage, and creates a “Flood Insurance Advocate” at the Internal Revenue Service. The National Flood Insurance Program (NFIP) has had temporary extensions and lapses since it started in 1968. The Waters legislation, in addition, would delay the implementation of flood area maps currently being updated by the Federal Emergency Management Agency (FEMA). Such a delay “would keep homeowners in affected areas from being burdened by insurance costs. Mandatory purchase of flood insurance would be delayed for five years,” she told constituents of her south Los Angeles District. So, mortgage companies wouldn’t be allowed to require homeowners to buy flood insurance during these years. But subsidized protection for other millions in flood-risky areas would continue to 2015 if her bill becomes law.
Waters chairs the Housing and Community Opportunity Subcommittee, which has jurisdiction over NFIP and FEMA. She currently faces ethics charges for her efforts to help a bank with ties to her husband. She is the third-ranking member of the House Financial Services Committee.
FEMA’s National Flood Insurance Program is the country’s main flood insurer. It was started because private insurance companies stopped covering expensive, repeated flood damage to homes and businesses. In repeatedly flooded properties, owners have collected billions of dollars from this federal subsidy plan regulated by Congress. The NFIP now helps to support entire industries: banks that sell mortgages to homes with flood insurance, construction workers who repair and build the homes, insurers who write the policies for homeowners on behalf of the government and real estate agents who sell the usually pricy waterfront properties.
In Wilkinson County, Miss., a home has been flooded 34 times since 1978, USA Today reported. Extraordinary as the repeated damage must be, even more extraordinary is that an insurer has paid claims every time, required no proof of flooding, never raised premiums after a claim and vowed to continue insuring the house forever. The insurer, of course, was the federal government’s NFIP. The value of that Mississippi home was reported to be $69,900, and total insurance payments have been nearly 10 times that–$663,000.
The number of “repeated-loss” homes has doubled in the past 15 years. One in ten repetitive-loss homes have claims that exceed the value of the homes. Not long ago, the NFIP paid $400,000 to raise a house in Pennsylvania by 10 feet. In recent years, more than $800,000 in flood claims reportedly have been filed for that same home. The Houston Chronicle reported Aug. 13, “The devastation wrought by hurricanes Katrina and Rita in 2005 has left the program deeply in debt with little or no hope of stemming the tide of red ink,” the Chronicle story said. Before NFIP, people who lived in coastal or other areas of high risk of flooding had to pay for repairs out of their own pockets or sometimes from disaster aid. The NFIP was supposed to use the premiums it takes in—even though they are low—to pay off damage claims.
In previous years the repeated lapses in the NFIP, and need for reauthorization to keep it going, opened up opportunities for congressional sponsors of the programs to collect plenty of campaign cash from lobbyists, such as the National Association of Realtors, the Houston Chronicle story noted.
“Flooding is the most costly and lethal type of natural disaster, causing about $6 billion a year in damage and killing roughly 140 people annually,” USA Today.com reported Aug. 26. Flood damage already has occurred in many states this year, including Louisiana, Texas, Florida, Mississippi, and New Jersey. The NFIP insures 5.6 million properties nationwide. The study by USA Today said the financial problems of NFIP reflect a broad government reluctance to restrain benefits. FEMA leaders and some lawmakers have tried to end the alluring premium discounts and the multiple insurance payments. “But there’s always been a few in Congress that have had enough political muscle to hold that back,” former FEMA assistant administrator David Maurstad was quoted as saying.
The General Accountability Office said in an April 21 report, “Unprecedented losses from the 2005 hurricane season and NFIP’s periodic need to borrow from the U.S. Treasury to pay flood insurance claims have raised concerns about the program’s long-tem financial solvency. Because of these concerns and NFIP’s operational issues, NFIP has been on GAO’s high-risk lists since March 2006. While Congress and FEMA intended that NFIP be funded with premiums collected from policyholders, rather than with tax dollars, the program is, by design, not actuarially sound. NFIP cannot do some of the things that private insurers do to manage their risks.”
The critical GAO analysis went on to say, for example, NFIP allows “grandfathered” rates. This lets some property owners continue to pay low out-of-date rates to get their damage fixed year after year. And NFIP can’t deny insurance on the basis of frequent losses. So, protection is provided for repetitive-loss properties, accounting for 25 to 30 percent of claims, GAO said. NFIP is “unlikely to pay off its $18.8 billion debt,” the GAO analysis continued. The agency also found “some contract monitoring records were missing, and no system was in place to allow” sharing of information on contractor deficiencies. Further, GAO said, “FEMA still lacks an effective system to manage flood insurance policy and claims data, despite investing roughly seven years and $40 million in a new system whose development has been halted.”
So, this slip-shod, wasteful government operation to deal with flood insurance now can be expected to become even more inefficient and more expensive, if Congresswoman Waters and others in Congress have their way. Hurricanes come and hurricanes go. But the spending of our tax money continues unceasingly, like a rushing mountain stream.
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