Enacted 50 years ago as a delayed response to the havoc Hurricane Betsy wreaked on the Gulf Coast in 1965, the program made a certain sense in theory. The private sector lacked the analytical sophistication or capital to insure against such risks, so the government would do so, in return for appropriate local land-use and other measures to prevent development in low-lying areas and for actuarially sound premiums. Politics being what they are, the program gradually fell prey to pressure from developers and homeowners in the nation’s coastal areas. Arguably, the existence of flood insurance encouraged development in flood zones that would not have occurred otherwise. Certain properties — overwhelmingly concentrated in a handful of Louisiana, Texas, New Jersey and New York counties — have collected repeated insurance payouts. People who own property by the beach tend to be better-off than average, which makes this a permanent taxpayer subsidy to upper-income people, too.
Not surprisingly, revenue consistently lagged costs, until Hurricane Katrina in 2005 essentially bankrupted the program. In fiscal 2017, it took in $4.2 billion and paid out $6.9 billion, raising the program’s total debt to $20.3 billion. This is about $10 billion below its legal limit — but only because Congress canceled $16 billion in debt last year.
Ideally, more of the costs of flood insurance would be shouldered by the people and places who benefit most from it; modern technology and financial tools should enable the private sector to handle more of the business, too. Such radical reform is not on Congress’s agenda, of course, but lawmakers could at least try more modest updates, in the spirit of a 2012 bipartisan measure that would have transitioned the program’s more than 5 million customers into new and more actuarially accurate insurance premiums. That necessarily implied higher premiums for many homeowners, however, so, under pressure from aggrieved constituents, Congress reversed the reform in 2014.
In 2018, there was another opportunity to reform the program, created by its scheduled expiration during the year. And Congress has missed it. Coastal-area lawmakers of both parties in both houses pushed instead for yet another short-term bill to reauthorize the program, more or less as is. A measure doing that passed both houses, and President Trump signed it on Tuesday. It expires Nov. 30. Take note of that date: It keeps the program going through the end of the hurricane season and, perhaps more importantly to the politicians, through the end of election season.