NCPA - National Center for Policy Analysis


April 6, 2009

In an effort to address concerns of coastal residents and reduce their financial risk from hurricanes, the national government is debating an expansion of its role in coastal insurance.  One such proposal -- the Multiple Peril Insurance Act (NFIP) -- would expand the National Flood Insurance Program to include windstorm coverage, says Matthew Glans, a legislative analyst for the Heartland Institute.

NFIP is the U.S. government's flood insurance and mitigation system; it's designed to reduce the cost of natural flood disasters and promote mitigation efforts in flood-prone areas.  It currently covers about 4.5 million homes in more than 20,000 communities; however, the 40-year-old program has not lived up to expectations, says the National Center for Policy Analysis (NCPA):

  • Since 1984, NFIP has paid out nearly $1 billion for at least 10,000 properties that have experienced two or more losses, with cumulative claims often exceeding the value of the property.
  • The program was designed to be self-sustaining, but the program currently costs taxpayers up to $200 million annually.
  • In 2007, the U.S. Census Bureau estimated 35.3 million people live in hurricane-prone coastal areas stretching from North Carolina to Texas, but adding windstorm coverage would encourage people to ignore important market signals and the real risks of living in the path of danger.
  • Moreover, providing hurricane coverage in coastal areas often is prohibitively expensive for both insurers and the insured.

Yet, more than 70 percent of coastal land is privately owned, so NFIP already disproportionately favors the wealthy.  Extending NFIP to cover wind damage would only exacerbate that problem, while adding billions of dollars in new liabilities for taxpayers -- and all in the middle of an economic downturn, says Glans.

Source: Matthew Glans, "Don't extend insurance to wind damage," Grand Forks Herald, April 5, 2009; Christy Black, "Subsidizing Disaster," National Center for Policy Analysis, Brief Analysis, No. 525, September 6, 2005.

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