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Why Congress Mustn't Postpone Vital Flood Insurance Reforms

April 4, 2016 - 6:00am

A new measure introduced by U.S. Reps. David Jolly and Gus Bilirakis, both R-Fla., that would postpone vital reforms to the National Flood Insurance Program, while well-intentioned, also would be bad for taxpayers and consumers.

After decades of charging rates insufficient to cover the risks it took on, the NFIP remains more than $23 billion in debt to the U.S. Treasury, with no practical way to pay it back. That's money that could have funded education, transportation, health care, defense and other programs that taxpayers reasonably expect to pay for. Those billions instead went to bail out a program that subsidizes a relative few to live in harm’s way and encourages development in high-risk, environmentally sensitive areas prone to flooding, often repeatedly.


Additionally, with its artificially suppressed rates, the NFIP has discouraged private companies from writing the peril of flood, which has resulted in a de facto monopoly depriving Americans of a competitive flood insurance market.


Recognizing that the NFIP would go insolvent without meaningful reforms or additional multibillion-dollar taxpayer bailouts, Congress and President Obama enacted legislation in 2012 and 2014 to shore up the program’s finances, which included modernizing maps, as well as moderate rate increases on some policyholders, especially those living in areas prone to repetitive flooding. In Florida, 87 percent of NFIP customers already pay full, actuarially sound rates and will therefore see no premium hikes. Most of the remaining 13 percent will experience modest rate increases over time, as prescribed by the reforms.


In recent years, Gov. Rick Scott and state lawmakers enacted legislation to encourage private companies to write flood policies in Florida. These state-level regulatory reforms, coupled with reduced global reinsurance rates and the NFIP’s gradual rate increases, have led to a budding private flood insurance market with competitive prices and better coverage options than the NFIP’s one-size-fits-all model.


Postponing these necessary NFIP reforms will serve to undermine Florida’s progress in fostering a healthy private market and discourage additional companies from writing flood risk in Florida. But more importantly, it would continue to foist enormous risk on taxpayers, who will inevitably have to bail out the NFIP every time the waters rise.


Christian R. Cámara is Florida state director and senior fellow of the R Street Institute, a free-market think tank.


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