flood insurance

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Flood insurance customers received an early, albeit temporary, Christmas present when President Donald Trump signed a six-month extension on the National Flood Insurance Program (NFIP).  

It’s a tough road ahead, however, as the Republicans lost the House of Representatives in the last election cycle. The takeaway here is that, even with a united front, lawmakers could not agree on how to change a program that is in dire need of reform. Without a consensus? Taxpayers may never get a new system.

And, currently, the system owes taxpayers $25 billion.

Flood insurance extends well beyond Louisiana, to be sure. The Bayou State drains almost 80 percent of the country, but they have rivers, creeks, lakes … plenty of bodies of water which can flood nearby towns and cities. Iowa caught its fair share of the mighty Mississippi in the mid-2000s.

So, the Louisiana delegation is not without allies, but there are plenty of representatives from other areas of the country who believed the program should be allowed to die altogether (hopefully with a private option coming on the back end).

Their argument is the rising debt level of the program, and in this day and age, that’s a pretty good leg upon which opponents can stand.

The problem is an economy of scale. The program has attempted to grow to a point by spreading the risk over as many people as possible – standard insurance practice.

If you have lived in Livingston Parish since before 2010 and had a mortgage, you probably remember receiving a letter that you were now “required” to have flood insurance after the Biggert-Waters Act passed.

In the wake of a bevy of natural disasters since Superstorm Sandy in 2012, spreading that risk still wasn’t enough – even at a national scale.

Five million people rely on the program, and even if they are – normally – outside of a flood zone, those consumers have come to rely on affordable flood insurance prices thanks to the aforementioned spread of risk among 5 million people.

So, what you get is a price that is – when compared to the damage incurred in the past 15 years or so – too low. According to a recent series of flood insurance quotes in Denham Springs, the cost of insurance through the program is anywhere from $50 to $250 per month, depending on location.

Quick note that there is private flood insurance, but that is usually either subsidized through the NFIP or an outright sell-through.

How do you reform a program that is $25 billion in debt, especially when a majority of that debt has been incurred due to natural disasters as opposed to good ole fashioned flooding?

It requires running it like a business, not a piggy bank. It’s important for anyone who participates in the program (in most cases, by law) that they help pay premiums in other places, and vice versa, when the funds are tapped.

Why is that important? So that, when the inevitable price increase comes, customers aren’t caught completely blindsided and understand that the program is simply spreading the risk.

From there, the idea of investing in mitigation infrastructure that has been posited by both senators and Congressman Garret Graves has to be an imperative. These projects employ people, generate local tax revenues, and increase property values.

And, who knows, on the back end they may in fact reduce flood insurance premiums if they can withstand future natural disasters.

The most important piece of this puzzle is the ability to collect information on the program – the devil in the details, so to speak. Who should be carrying insurance, but isn’t? Is the government charging enough? From there, efficiency of expenditures can be determined – perhaps the program simply does a poor job of dispensing its collected funds.

Unfortunately, once those questions are answered, some unpopular decisions will have to made regarding coverage and cost. Without disaster mitigation, there’s nothing preventing the Great Flood of 2016 from happening again – or Superstorm Sandy, for that matter.

After study, infrastructure investment is a great place to start, but a price increase is inevitable. Those who pay into the program should prepare for that outcome.

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