National Flood Insurance Program $18 Billion in the Red

Published: Mon 09 Aug 2010

Wendy Blair

From 1977 to 1995, the National Flood Insurance Program (NFIP) spent $806,591 on claims for recurring storm damage to a house valued at $114,480 in the suburbs of Houston. That is just one example of the glaring disparity between what the NFIP is taking in from premiums and what it is paying out in claims.

The federal government's program to safeguard coastal homeowners from losses caused by natural disasters has paid out over $8 billion in claims in the past 15 years for over 150,000 very high-risk properties that have made several storm-damage claims.

And that is only one of many issues plaguing a program that was intended to be a necessary economic safety net for hundreds of thousands of homeowners on the coasts. The program has received criticism for failing to fulfill its mission and managing its funds poorly. Critics claim the flood insurance program, instead of providing a safety net against catastrophic hurricane damage, has turned into a coastal-homeowner subsidy funded by taxpayers that encourages people to remain and build in disaster-prone areas.

Because of the crippling repetitive-loss problem, one percent of homes account for 25-30 percent of the claims the NFIP pays out. In the last 15 years, the number of repetitive-loss properties has more than doubled. Moreover, the carnage caused in 2005 by Hurricanes Katrina and Rita put the NFIP deeply in debt with little promise of breaking even in the foreseeable future.

Losing about $200 million annually, the NFIP currently owes the Treasury Department over $18 billion-a debt that the Government Accountability Office says NFIP is not likely to repay.

"Sadly, very little has really been accomplished on the ground compared with the exploding magnitude of the problem," said David Conrad, a specialist in water resources for the National Wildlife Federation who has researched the federal flood insurance program.

Minimizing Taxpayer Risk

The environmental policy representative for the National Association of Realtors, Austin Perez, claims that "it's not true" that the flood insurance program encourages homeowners to rebuild in high-risk areas. Rather, he says, the program permits residents to live in risky coastal regions with a certain degree of confidence they will not face financial ruin.

"If there were no flood insurance, the taxpayers would pick up the bill in the form of disaster relief," Perez said. "This program actually reduces the risk to taxpayers in the event of the flood."