Editorial: Swap the flood insurance program for a national catastrophe fund.

Congress should consider replacing the National Flood Insurance Program with a catastrophe fund. Times (2018)
Congress should consider replacing the National Flood Insurance Program with a catastrophe fund. Times (2018)
Published June 3, 2019

The National Flood Insurance Program doesn't work well. Maybe it did years ago, but not anymore. The proof: Lawmakers have had to temporarily extend the foundering program 11 times in the last 18 months because they couldn't find a long-term fix. As another deadline looms, homeowners and the real estate industry once again hold their collective breath as politicians in Washington bumble around for answers. It's time for a long-term solution, and a national catastrophe fund deserves a serious look.

The flood insurance program was set to expire last week until Congress quietly extended it Thursday to June 14. It had been tied up in the same $19.1 billion disaster aid bill that stalled when a Texas congressman balked that it didn't include money for immigration security. That bill would extend the program until September, during which time lawmakers hoped to craft a lasting deal. Without the two-week extension, many home buyers would not have been able to find flood insurance, which would have scuttled some sales. Floridians should not have to go through this stressful dance every few months.

The flood program includes more than 5.1 million policies and covers over $1.3 trillion in property. But it's awash in debt — $20.5 billion — thanks to hurricanes Katrina, Harvey and Irma and superstorm Sandy. Lawmakers have proposed large rate increases that would unfairly penalize Florida homeowners, who have paid far more into the fund than they have received in payments over the last 40 years.

A national catastrophe fund could help do away with the defective flood program. It would spread the risk of floods, hurricanes, earthquakes, tornadoes, wildfires and other disasters across state lines. When disasters strike now, the Federal Emergency Management Agency often swoops in with loads of tax dollars. It's an inefficient way to tackle the problem and one that adds to our growing national debt.

While needed, the relief efforts also promote the assumption that the government will cover individual losses. It doesn't, not even close. After Hurricane Harvey hit the Houston area, flooding victims with insurance received $120,000 on average. Those without insurance who applied for government assistance got between $4,000 and $7,000. A catastrophe fund would encourage more homeowners to pay for insurance, keeping them from such dire financial circumstances.

The fund would attract private insurers by providing incentives for reinsurance companies, essentially insurance for insurance companies. Done right, private reinsurers could diversify their exposure even further by balancing the risk of a disaster in the United States against one overseas, as they do now. Think of it as hedging the chance of a California wildfires against the chance of an earthquake in Italy.

The framework for a national catastrophe fund will have to incorporate sensible mitigation efforts. That could mean buying properties that repeatedly flood or burn up in wildfires. Local governments will have to push back against developers who insist on building in high-risk areas. They will have to tighten their building codes so that what gets built doesn't unfairly burden the national fund. They will have to be clear-eyed about climate change.

Lawmakers should end the dithering over the dysfunctional flood program, and the cost of coverage for natural disasters should be spread more evenly. A national catastrophe fund is a sensible alternative that Congress should give serious, unbiased consideration. Florida and the nation would be better off.