TORRENTIAL RAINS and massive snow melts have brought flooding to a swath of the Midwest, and more water damage could be on the way later this year. The National Oceanic and Atmospheric Administration (NOAA) forecasts that 25 states could experience “major or moderate flooding” this spring. It is a challenging period for the communities and state governments involved — and for the federal government, especially its financially strapped agency for protecting homeowners, the National Flood Insurance Program.
The NFIP covered 5 million policyholders to the tune of $1.3 trillion . (It has more than 60,000 policies in force across the states hardest hit by the current floods, Nebraska, South Dakota, Missouri, Iowa and Wisconsin; providing $11.6 billion in coverage.) In 2017, the NFIP took in approximately $3.6 billion in premiums and paid out $8.7 billion, raising the program’s total debt to more than $20 billion. This is about $10 billion below its legal limit — but only because Congress canceled $16 billion in debt in 2017.
There is probably nothing that can be done to prevent another drain on NFIP resources this year, with more to come as climate change exacerbates weather-related disasters. What the program badly needs is long-term reform to increase its resiliency. For too many years, the NFIP has systematically mispriced risks, effectively subsidizing residential building in flood-prone areas — with benefits disproportionately accruing to upper-income beach-house owners — and subjecting taxpayers to avoidable expenses.
A complete overhaul of the program would require Congress to act. In the meantime, the Trump administration does appear laudably willing to change the NFIP administratively. The Federal Emergency Management Agency (FEMA), which oversees the NFIP, is contemplating a “Risk Rating 2.0” plan that would charge policyholders according to the specific flood risks associated with the location and structural characteristics of their property, rather than much more general underwriting criteria currently in use. The plan would make use of data gathered by private-sector insurers to use for the public. About half a million people who need flood insurance have dropped out of the program since 2009, and the hope is that more rational pricing will reverse that trend.
The new system would not take full effect until October 2020, and, like all such policy changes, it is bound to create both winners and losers, financially speaking. The inevitable effect of more accurate pricing is that some customers’ rates will go up — and others’ will go down. And don’t be surprised if the losers make more noise than the winners. When the complaints start, Congress and the administration will have to stand firm, lest this modest but necessary reform get washed away, like so many others before it.