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Federal Flood Insurance Needs to Cover Its Costs

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sherlockj
in ,

Flooded street in Norfolk during Hurricane Sandy

by James C. Sherlock

Virginia is suing FEMA over its new risk rating methodology for the National Flood Insurance Program (NFIP).

Virginia’s suit says that the new methodology:

doesn’t recognize many mitigation efforts, nor does it clearly explain how rates are calculated based on mitigation efforts. This means that (Virginia’s) mitigation efforts don’t result in lower premiums for policyholders.

The suit does not state that the rates are not high enough. Which they are not.

  • The costs of repair and rebuilding have soared;
  • Sea level rise combined with subsidence is both measured and forecast to increase flood hazards on Virginia’s coasts.

The rest of the country does not “owe” a discount on flood insurance to those of us that choose to live in flood-prone areas.

Rate payers need to cover the costs of the NFIP, including building a reserve – like a real insurance program.

At least three additional issues are pertinent:

  1. Virginia’s mitigation efforts do not represent a serious attempt to make a difference in mitigation of historic, much less future, hurricane storm surges on our coasts. See the Great Chesapeake-Potomac Hurricane of 1933. Norfolk’s downtown was six feet underwater in 1933, and there have been several feet of sea level rise and subsidence since then;
  2. NFIP is functionally bankrupt. It owes the Treasury $25 billion that can only be repaid with higher rates. So coastal state lawmakers want it written off. That is a match to their position on raising rates; and
  3. The NFIP subsidizes risky properties along the coast by charging them below-market premiums. Indeed they advertise to get them to join the program.

NFIP premiums need to cover the projections of payouts and the building of a reserve. I hope that Virginia is only arguing how rates are calculated and distributed, not that they should not go up.

Congress must reauthorize the NFIP by no later than Sept. 30, 2023. I’m going out on a limb and predict they’ll kick the can.

Then again, money is no object in Washington. Maybe they’ll create federal fire insurance. Or federal insurance for boats in Hampton Roads.

We will need them to evacuate.

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21 responses to “Federal Flood Insurance Needs to Cover Its Costs”

  1. David Wojick Avatar
    David Wojick

    Much of the settled USA is in flood prone areas. We build where the ground is relatively flat not steep. But this program is ridiculous. I know young people who cannot afford a house because it is beside a creek. The federal program is worse than useless.

    1. Nancy Naive Avatar
      Nancy Naive

      I always chuckle a bit when driving up north, e.g., Vermont, etc., when I think what the road builders must have been thinking. “Where should we put the road?” “How ‘bout next to the river where the ground is already flat?”

      1. James C. Sherlock Avatar
        James C. Sherlock

        That is certainly where they built their settlements that turned into cities.

        Buoyancy is the force and the flotation the principle that makes water the most efficient way of transporting goods in bulk and raw materials.

        Always has been. Still true today.

        What do you think of the federal boat insurance for emergency egress concept?

        1. Nancy Naive Avatar
          Nancy Naive

          Water (especially with salt) is the most insidious substance on the planet. It will, in time, erase our existence.

          I know that I consider my boat to be my egress insurance. It’s worthy of an Atlantic crossing. It’s me holding it back.

          If you’re referencing Dunkirk, that’s a one in a billion. It’s been done so odds are any similar attempt for any reason is a certain disaster.

      2. energyNOW_Fan Avatar
        energyNOW_Fan

        …and railroads

  2. Randy Huffman Avatar
    Randy Huffman

    Do not disagree with the point, but price out houses at the beach and near water and values have escalated to the point where homeowners have to get supplemental policies at market rates. So in many cases home inflation is taking on more and more of the risk.

    Should note maximum coverage is $250,000 for the house, I believe another $100,000 for contents.

  3. Nancy Naive Avatar
    Nancy Naive

    What’s that fella’s name, John Stossel? He described how NFI built him a bigger and better beach house after each storm.

    Then there is one house in Houston that was valued at $250K ten or so years ago, when the story ran, that had collected $2,500,000 in flood claims.

    It’s almost to the point where we need to create an NAOGIP and put everyone in it. Oh, it’s the National Acts Of God Insurance Program that covers everything not resulting immediately from human screwups, e.g., tornado, hurricane, lightening caused forest/brush fire, volcanic & geological ground displacement, tree falls, etc., and leave the liability, plumbing, wiring, etc., insurance to the commercial insurers.

  4. Lefty665 Avatar
    Lefty665

    NFIP rates went up substantially several years ago. Guess they need to increase more. Along with a Lloyd’s homeowner’s policy, insuring a coastal house costs several times as much as it did not long ago.

    1. CJBova Avatar
      CJBova

      The rates were to increase 25% a year until they reached market value.

  5. f/k/a_tmtfairfax Avatar
    f/k/a_tmtfairfax

    Flood insurance premiums should be cost-based. And taxpayers should not be forced to protect property built on landfill, unless its a naval base or other critical federal facility. A study was done after Hurricane Sandy. The places flooded in Manhattan were built on landfill. Much of San Francisco, including most of the Financial District, was built on landfill. But don’t hold your breath.

    1. Stephen Haner Avatar
      Stephen Haner

      Also the most vulnerable locations in an earthquake, the structures on landfill. The underlying ground behaves like a liquid.

  6. Stephen Haner Avatar
    Stephen Haner

    Perhaps the headline should be flood insurance needs to cover your cost? This program has always troubled me, because you need a pretty good income and cash flow to maintain that level of insurance, and plenty of people in harm’s way do not have the option. If it is going to exist, the risk pricing needs to be honest.

  7. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    Another provision needs to be considered. Federal flood insurance should be a one shot deal. After the government pays out once, that’s it. If you rebuild, you are on your own.

    1. Nancy Naive Avatar
      Nancy Naive

      Certainly not with efforts to mitigate. For example, in Poquoson after Isabel most home were lifted well above the flood levels seen.

      There is a limit, of course, but how does one approach 10s of 1000s of Love Canals? As they happen, or prior to disaster based on risk? I should think the latter. Current value buyouts as opposed to waiting.

  8. Nancy Naive Avatar
    Nancy Naive

    Is it really “insurance”? Where’s the risk mitigation? Where’s the investment to reduce premiums?

  9. Stephen Haner Avatar
    Stephen Haner

    Perhaps the headline should be flood insurance needs to cover your cost? This program has always troubled me, because you need a pretty good income and cash flow to maintain that level of insurance, and plenty of people in harm’s way do not have the option. If it is going to exist, the risk pricing needs to be honest.

  10. DJRippert Avatar
    DJRippert

    “The rest of the country does not “owe” a discount on flood insurance to those of us that choose to live in flood-prone areas.”

    Does the country “owe” transfer payments to rural areas without a sufficient economic base to support the population who choose to live there?

    1. WayneS Avatar
      WayneS

      Does the country “owe” transfer payments to rural areas without a sufficient economic base to support the population who choose to live there?

      No.

  11. WayneS Avatar
    WayneS

    There are three important things one can do to avoid the need for flood insurance:

    1) Don’t build in a flood plain or other flood-prone area.
    2) Don’t build in a flood plain or other flood-prone area.
    3) Don’t build in a flood plain or other flood-prone area.

    1. Lefty665 Avatar
      Lefty665

      You mean like the east coast from Florida to Maine?

      1. WayneS Avatar
        WayneS

        Yup.

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