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US GOV is #1 Flood Insurance Provider & program is $25 Billion in Debt

1,323 views · Published 27 July 2017 · 11:38 · Indexed 28 October 2026

Channel: thornews · 2017 · Science & Technology

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This story just keeps getting worse and more sinister. 

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The Article 

https://www8.gsb.columbia.edu/articles/ideas-work/national-flood-insurance-program-deep-waters

National Flood Insurance Program in Deep Waters

“I am afraid we are going to find many more lost than we had thought.”

That was how then-president Lyndon B. Johnson tersely characterized the devastation wrought by Hurricane Betsy to a reporter from the New York Times on September 12, 1965 after he surveyed the damage in New Orleans three days after the hurricane made landfall. The storm took the lives of 76 people, and caused some $1.5 billion (11.6 billion in 2017 dollars) in damage, making it the country’s first billion-dollar storm.

Betsy’s most enduring impact, however, has been on the nation’s disaster insurance programs. After the devastating Mississippi River Flood of 1927, private insurers largely abandoned the US flood insurance market, leaving congress to put together ad hoc recovery plans for disaster-stricken areas. When Betsy struck in 1965, flood insurance was entirely unavailable to those in the disaster area. The damage wrought by the hurricane, however, provided the political impetus for dramatic change, and in 1968 the nation launched the National Flood Insurance Program (NFIP), a federally administered program to bring affordable flood insurance to at-risk property owners. Fifty years later, however, one of the world’s longest standing government-run disaster insurance programs is showing signs of strain.

The biggest problem with flood insurance is that no one knows exactly what it should cost. And, thanks to generous government subsidies provided through NFIP, few people even know how much it actually does cost.

A few experts scattered through the private sector and some of the world’s top universities have produced intricate models with a dizzying array of risk-assessment inputs, all of which continue to mutate due to the continuing uncertainty over the impact of climate change. Some of these models may sync up or overlap; others may not. No one’s really sure at this point because many of these models are proprietary and can’t be shared, while the public models, including those used by the US Federal Emergency Management Agency, may be based on outdated data and are susceptible to political squabbling.

“We spend a lot of time at meetings like this talking about financing risk,” Stephen Weinstein, a senior vice president at RenaissanceRe Holdings Ltd., a reinsurance firm, told a mixed crowd of investors, academics, and policy makers on May 2, 2017 at a conference held by Columbia Business School’s Tamer Center for Social Enterprise. “But we spend almost no time talking about the number of Americans who are literally in harm’s way, against risks that are increasing all the time. We’ve lost more Americans to climate-related disasters in the United States since 9/11 than we have to terrorism.”

Despite the importance of the program, NFIP faces significant challenges, including immediate concerns over its solvency. Between 2005 and 2012 the program was forced to borrow several billion dollars from the US Treasury to make payments to those affected by Hurricanes Katrina and Rita, as well as Superstorm Sandy — money the Government Accountability Office asserted in its 2017 report that the program would be unlikely to be able to pay back. As it stands, the program is nearly $25 billion in debt.

Government-subsidies also obscure market signals, according to Christopher Mayer, a professor of real estate at Columbia Business School, which may have the unintended effect of putting more people in harm’s way.

The humanitarian argument for subsidizing at-risk areas would seem to be clear: Without it, those least able to afford the economic shock of a disaster, or to relocate away from high-risk areas, couldn’t afford the coverage that would make it survivable. A 2012 amendment to the law, the serendipitously named Biggert-Waters Flood Insurance Reform Act, was meant to put NFIP on more solid fiscal footing by gradually allowing rates to rise to reflect actual risk and ceasing coverage for second homes and properties that had been flooded multiple times. The act, however, was partially reversed in 2014 by the equally ominous-sounding Grimm-Waters Act of 2014.

In Mayer’s view, these continued subsidies sacrifice long-term economic soundness for potential short-term political gain. Similarly, cities are reluctant to designate any more land than absolutely necessary as high-risk flood zones because, in addition to imposing additional costs on voters, it may scare away developers. In 2015, New York City appealed the new flood maps issued by FEMA, designed to indicate the longer-term risk posed by climate change, which placed an additional 35,000 homes in the city into high-risk areas.

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