Flood Insurance at Flood Tide

July 13, 1993

For some Americans watching and reading about the unprecedented floodwater damage in the Middle West, sympathy and generosity are going to be tempered when they get the bill. That is because much of the disaster relief cost is going to be for repairing or replacing structures built dangerously close to rivers well known for their destructiveness. In many cases -- too many -- these structures have been flooded out again and again, and rehabilitation has been subsidized each time.

The subsidies come in two forms. There are grants and below-market-rate loans for victims without flood insurance. Congress can be counted on to respond to the tragedies floods produce with emergency appropriations for such programs. The second form of subsidization is flood insurance, itself. The federal government now underwrites flood insurance at far below risk-based rates.

The problem with flood insurance is both that too many homes have it and that too few do. Estimates of the number of uninsured structures in risky flood areas along rivers and the coasts vary, but at most, it appears, only about one-fourth of all at-risk structures are insured. That is why Congress will soon be asked to bail out uninsured homeowners in the Middle West. But lucky for Congress there are not more policy-holders. The insurance is sold at such a ridiculously low cost to many homeowners that the fund is in no way able to pay off the claims in a bad year.

And 1993 is a bad year. Before the first claim from this month's floods was ever filed, the National Flood Insurance Program was in deficit -- about $18 million. NFIP has to borrow money to pay off claims when it can't cover them from premiums. There is a limit to how much it can borrow -- about $1 billion -- and Rep. Douglas Bereuter, R-Neb., predicted this week that claims will exceed that this year. In addition to the claims from the Middle West, hurricane activity is expected by weather scientists to be greater than usual this year, and hurricanes can generate enormous flood damage. The NFIP has over $200 billion in outstanding policies. Congress will be pressured to appropriate money to pay off claims if the NFIP's borrowing limit is exceeded. That is why some critics of the flood insurance program call it the "savings and loans of the seas," just waiting for a disaster to require a massive bailout.

Representative Bereuter is the author of legislation aimed at avoiding such a disaster and bringing some logic and common sense to the flood insurance program. He would make lenders require flood insurance of threatened properties. He would raise premiums to reflect true risk. He would put an end to repetitive claims in high risk flood zones. It is good legislation that deserves to become law. Some people are willing to take the risk involved in living on the seacoast or lakefront or river's edge. They should not be denied that right. But they, not other taxpayers, should have to pay for the resultant damages when the waters rise.

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