This year marks the 50th anniversary of the National Flood Insurance Program, and this federally funded program has not aged well.
In 2017, it experienced the second largest year of disaster in its history. Hurricanes Harvey, Florence and Michael uncovered fundamental deficiencies in the NFIP.
These storms could herald a wetter future and, combined with rising sea levels, devastate vast areas of the country unless our leaders critically address the risk of flooding. .
Floods are the most widespread and destructive natural disaster in the United States. They have affected all 50 states in the last five years. The floods left the PNIF with $ 20.525 billion in debt to the US Treasury in 2017 and a $ 9.9 billion reduction in borrowing capacity.
And these numbers do not include the damage caused by the 2018 floods. Since 2004, the program has borrowed $ 39.4 billion from the federal government and is expected to continue to lose $ 1.4 billion annually.
Although it is easy to call the NFIP program a disaster, it should be noted that in 1968, when the NFIP was created, its goal was to provide a viable market, fueled by premiums paid by insured persons. At the time, private insurers were not interested in the market.
The objectives of the program remain commendable:
• Reduce the impact of floods by providing affordable insurance.
• Improve the management of flood zones.
• Develop maps to identify flood areas.
Unfortunately, despite sophisticated modeling capable of simulating floods of low and high intensity, many properties are located in areas that make them very expensive to insure.
The private market for some flood risks continues to grow, but insurers and reinsurers will only assume the risks that give them a reasonable expectation of a return on investment. In the United States, the private market accounts for only 15% of the flood risks insured from 2017.
To provide affordable insurance, the NFIP offers subsidized rates to coastal and inland properties located in areas at risk of flooding. These rates do not generate enough money to pay the losses covered by the NFIP.
According to CoreLogic, about a quarter of the country's residential and commercial properties are at high or moderate flood risk, but are located outside designated high-risk areas. Only 28% of property owners in high-risk areas purchase flood insurance.
What about the purpose of floodplain management?
The NFIP began its mission 50 years ago, before the explosion of an explosion of development in what is called the 100 year old floodplain. Today, 41 million people (about 13% of the US population) live in areas of potential flooding.
Floodplains contain over $ 5 trillion in assets. When managers try to assess the risks of communities, they must take into account development, infrastructure and people. But these data often change, so that the risk assessment is often wrong when the data does not reflect current and expected conditions.
With regard to the third objective, the program has developed maps of areas at risk of flooding, but they are often obsolete. For example, about two-thirds of the Hurricane Harvey flood occurred outside of the flood risk zones of the program.
The NFIP is broken. In 2016, the Government Accountability Office made recommendations to address its shortcomings. These were the same recommendations as those made in 2008 and again in 2013.
They have never been discussed because they were so expensive. The reports consistently suggest three solutions to the program:
• Require flood prone properties to take out flood insurance.
• Change premiums in higher risk communities to reflect the actuarial cost of risk.
• Limit the amount of insurance available for properties that have already been flooded or create policies that limit reconstruction in high-risk areas.
Congress Can not Agree on How to Reform Flood Insurance Reform bills are often disappointed by special interest groups, such as developers, real estate agents and even advocates. well-intentioned consumers. Legislators also face opposition from their constituents who wish to avoid higher premiums.
In 2012, the Biggert-Waters Bipartite Flood Insurance Reform Act was designed to phase out rate increases and impose actuarially applied premiums. As a result, artificial suppression rates have begun to increase. Two years later, Congress reinstated rate subsidies as some homeowners were faced with a 800% premium increase in some cases.
Fixing tariff increases alone can not solve the problem. We must consider the possibility that our approach to flood insurance is imperfect.
How far should we go to welcome those who choose to build or live in high-risk areas?
How can we continue to provide insurance at subsidized rates and for how long – and to whom?
How can we increase the pool of "at risk" owners? How can we require the purchase of flood insurance for homeowners who do not know that their property is in danger because of defective NIFP cards?
Solving these problems will require great political will and a strategic approach. The government will need to integrate resilience into infrastructure decisions, offer risk financing solutions to homeowners who need help to mitigate them, and enact laws that discourage homeowners from building in risky areas.
It will require a strong commitment from all stakeholders to achieve changes in public policies that recognize and address the inevitability of floods.
Anita Byer is President of the Setnor Byer Insurance & Risk Property and Casualty Brokerage in Plantation, Florida.