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EDITORIAL: Sandy slaps Uncle Sam’s handouts

Federal flood insurance risks Mother Nature’s fury

Shaking up the election wasn't the biggest problem with last week's hurricane. Owning an ocean-view vacation bungalow or retirement home is part of the American dream. For thousands, the dream turned nightmarish as Hurricane Sandy ravaged seaside towns along the Atlantic coastline. As rebuilding efforts proceed, it's essential to acknowledge an uncomfortable truth: Uncle Sam has been encouraging construction in the most danger-prone areas. That's something that has to change.

Sandy's wide path of destruction demolished or damaged homes and businesses from Maryland to Massachusetts. Covered losses of $10-$20 billion plus lost productivity could result in a $50 billion hit to the economy, according to Eqecat Inc., a catastrophic-risk consultancy. Private homeowners' insurance generally takes care of wind damage, but a separate flood policy is required to cover destruction caused by rising water. The National Flood Insurance Program (NFIP), established by Congress in 1968, allows residents of flood-prone areas to purchase insurance backed by the federal government. The Federal Emergency Management Agency (FEMA) produces flood-hazard maps that designate communities eligible for subsidized insurance.

Rates average an affordable $585 a year -- and that's the problem: NFIP doesn't collect enough in flood-insurance premiums to cover payouts. FEMA has around $3.6 billion in its disaster-relief fund, according to agency administrator Craig Fugate. That's a small fraction of the amount that will be spent on claims filed as a result of Sandy's destruction. When the fund is exhausted, Congress will likely replenish it with taxpayer cash, sticking everyone across the country with the bill for rebuilding demolished East Coast communities. Covered losses of $20 billion would end up costing Americans around $250 per household.

Meteorologists called Sandy a "superstorm" due to its 1,000-mile breadth rather than its modest Category 1 intensity. In recent memory, only Katrina in 2005 cracked the National Hurricane Center's list of the top five hurricanes. By comparison, that storm reached Category 5 strength before inflicting $84 billion in damage across the New Orleans region. More important than a storm's intensity is its track, and Sandy slammed into the nation's most populous coastline.

Americans have become accustomed to appealing to Big Brother for financial assistance when disaster strikes, but the government is broke and can't afford to keep writing checks for flood-zone bailouts. Congress acted smartly when it reauthorized the NFIP in July and included a phaseout of flood-insurance subsidies for vacation homes in flood zones. FEMA should also move boundaries for its flood-hazard maps away from vulnerable shorelines, shrinking regions eligible for subsidized insurance.

With federal flood insurance, Uncle Sam skews risk assessments intended to mitigate the danger of building in flood-prone areas. In doing so, Washington is inadvertently contributing to storm-related death and destruction. Policies that encourage Americans to build their dreams too close to coastlines vulnerable to Mother Nature's wrath are neither compassionate nor financially sound.

The Washington Times

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