Don’t Kill Flood Insurance Program, Insurers Tell Congress

Closing the federal flood insurance program would put millions of homeowners at risk and cost taxpayers billions of dollars, insurers are warning after a Republican lawmaker filed legislation to eliminate the federal program.

“Eliminating the National Flood Insurance Program is the worst policy option out there,” said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies (NAMIC). “The NFIP, while not without its flaws, is the only mechanism we have to ensure that those facing a flood risk are helping to cover the costs of flooding. If you take that away, you’re putting more of the expense of any major flood on the shoulders of the taxpayers.”

Rep. Candice Miller, R-Mich., has filed an amendment to HR 1309, the Flood Insurance Reform Act of 2011, a broad bill that reauthorizes the NFIP for five years, limits what properties it can write, and moves it toward cost-based pricing.

Miller’s amendment calls for a complete shutdown of the program as of January 2012. Miller’s bill would instead allow states to form regional insurance compacts to spread risk.

The Federal Emergency Management Agency would still be allowed to assist in producing flood maps, as well as assist states and the private sector to insure against flood loss under Miller’s plan.

The Michigan Republican is no fan of the federal program.

“Why in the world is the federal government even involved in the flood insurance business? Is that our core purpose of being the federal government? It’s ridiculous. This program was started in 1968 and the government began writing policies in the early 1970s, and no great surprise, the federal government is doing a lousy job of being in the insurance business,” she said in announcing her amendment.

The NFIP is about $18 billion in debt to the U.S. Treasury, largely as a result of aiding communities after Hurricane Katrina.

Miller is all for closing it down.

“We can’t be reforming useless government programs; they need to be eliminated. And I believe that the National Flood Insurance Program is a waste of taxpayer’s dollars, it is a boondoggle, and it needs to be eradicated,” said Miller.

Miller argues that NFIP is a bad deal for Michigan whose residents subsidize payments to property owners in other states. From 1978 to 2010, Michigan residents paid $284 million in premiums and received $45 million in claims, she points out, citing Congressional sources. Meanwhile, residents in Louisiana paid $3.9 billion in premiums and received $16 billion in claims payments.

Her amendment would also direct NFIP to halt all television and radio advertising meant to publicize the availability of the coverage.  She says NFIP is spending more than $7 million a year on TV and radio ads.

But private insurers say that her approach is irresponsible.

“Terminating the NFIP is not responsible public policy,” Grande said. “The unique nature of flood risk makes it virtually impossible for private insurers to be able to offer a viable and affordable insurance product. That is why Congress created the NFIP in the first place.”

Grande said that replacing the federal program with regional programs will exacerbate the problems posed by adverse selection and concentration of risk.

“Ending the NFIP means that millions of home and business owners who need coverage won’t be able to get it, and that FEMA will be spending billions more of taxpayer dollars for flood recovery,” he said.

The NFIP will expire at the end of September if Congress does not pass a reauthorization.

The House is scheduled to begin debate on the HR 1309 today. The bill has the backing of many in the insurance industry. HR 1309 was introduced by Rep. Judy Biggert, R-Ill.

“HR 1309 would enact exactly the sort of reform the NFIP needs to better serve the American people, which is why it passed out of committee unopposed,” Grande said. “Rep. Miller’s amendment, if adopted, would be a disaster for all involved.”