NCPA - National Center for Policy Analysis


May 24, 2006

You may never have heard of Camille Howard of New Orleans's Jefferson Parish. But if you pay taxes, you've helped her repair her home with federal flood insurance (NFIP) no less than four times since she has owned it -- and seven times before that. And therein lies a tale of policy mistakes and taxpayer liability, says the Wall Street Journal.

  • The federal government says some 120,000 properties nationwide have received "multiple" taxpayer subsidized flood insurance payments -- at a cost of $7.25 billion.
  • An astounding 26,000 of those have received four or more flood payments.
  • One property in Houston flooded 16 times and sucked up $807,000 in repairs -- seven times its market value. The owner keeps rebuilding, mother nature keeps tearing it down, and hapless taxpayers keep footing the bill.

Ideally Congress would abolish the NFIP, and homeowners would purchase flood insurance in the private market or accept the risks of building, says the Journal. But Congress has a history of bailing out homeowners from natural disasters, so abolishing the program would eliminate premium collections -- arguably leaving taxpayers worse off. Half of the New Orleans homeowners who will receive flood assistance from Katrina never bothered to pay any flood-insurance premiums. But that isn't stopping Congress from paying them to rebuild. Why does anyone pay premiums?

The most prudent reform strategy will be proposed this week by Senate Banking Chairman Richard Shelby. The Alabama Republican would move the program toward actuarial soundness by charging risk-based premiums.

  • The riskier region you build in, the higher premiums you will pay.
  • This would require updating maps of flood regions, which in places like New Orleans are now tragically obsolete.
  • Shelby also argues that there's no reason for taxpayers to underwrite insurance for luxury or vacation homes, or for repetitive loss properties.

Source: Editorial, "Taxpayers Get Soaked," Wall Street Journal, May 24, 2006.

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