- The Washington Times - Monday, August 27, 2007


Congress has promised changes to the nation’s main flood-insurance program but has shown little enthusiasm for taking the unpopular steps that analysts say are necessary to fix it.

Recent flooding in the Midwest has brought the issue back to the forefront. Hurricanes Katrina and Rita, back-to-back storms in 2005, dispelled any notion that the insurance program was self-sustaining. They threw it roughly $20 billion into debt and called attention to major structural flaws.

Nearly everyone acknowledges it cannot pay off the debt, much less pay for losses in future storms. But so far, Congress has done little besides raising the program’s borrowing limit, essentially handing taxpayers a series of shaky IOUs.

“The early rhetoric was, ‘We’re going to fix this. We’re not going to tolerate this continued exposure of taxpayers to unlimited subsidies,’ ” said Robert Hunter, a former director of the flood program who now oversees insurance issues for the Consumer Federation of America. “They’ve done nothing to fix it. It’s just unbelievable.”

The National Flood Insurance Program was created in 1968. Run by the Federal Emergency Management Agency, it provides nearly all the flood coverage in the U.S. Private agents sell policies to homeowners worth up to $250,000 in structural coverage and an additional $100,000 for contents. Premiums average about $400 per $100,000 of coverage — rates that do not reflect real risks and therefore shift costs to taxpayers.

After the 2005 hurricane season, the Government Accountability Office added the program to a short list of “high-risk” areas in the government that the agency thinks need urgent attention. The starting point for an overhaul, scholars say, is raising rates for the more than 5 million policyholders, particularly those with high-risk coastal properties or vacation homes. Other recommendations include requiring coverage in more areas, enforcing tougher building and land-use policies and updating old flood maps so homeowners know their true risks.

“To really fix the program doesn’t include a great deal of good news,” said David John, an insurance policy scholar at the Heritage Foundation. “For a politician, this is a no-win situation. But unfortunately, delay makes it a no-win situation for the taxpayer.”

Legislation addressing some of the issues stalled last year. This year, the House has made some progress. But critics say a bill passed by the House Financial Services Committee last month barely tackles the problem.

The bill includes only modest rate increases, allowing premiums to rise a maximum of 15 percent per year instead of the current cap of 10 percent. The measure has drawn attention largely for a provision to expand the program by adding wind coverage.

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