Flood insurance that works

Most homeowners don't have flood insurance. Yet 1 in 4 houses will experience flood damage during a 30-year mortgage – a greater risk than fire – one more reason Congress should try again to reform federal insurance in flood-prone areas.

The last Congress ended in December without reforming the National Flood Insurance Program (NFIP), which provides insurance in flood zones where private firms won't. The 2005 hurricanes in the Gulf showed inherent weaknesses in the NFIP and the idea of taxpayers subsidizing those who choose to live in disaster-prone areas, especially along beachfront areas in the southern US, without proper safeguards.

Outsized claims from hurricanes Katrina and Rita helped push the NFIP into $21 billion of debt. Congress has partially bailed out the program but more than a third of its premiums now go to paying off that debt.

But with a mild hurricane season in 2006, along with stalling tactics by some Louisiana lawmakers in Washington, Congress faltered in stanching that red ink and reforming the NFIP. The new Congress needs to move quickly to adopt reforms.

Erratic weather patterns, like the recent heavy rains in the Northwest, are widely predicted for the US. The outgoing director of the National Hurricane Center, Max Mayfield, warns of a new cycle of severe hurricanes for the next couple of decades. That calls for better market incentives, such as higher insurance costs and stricter building codes to better protect residents in the Southeast and to keep people from building in vulnerable coastal areas.

Most needed are reforms that prevent NFIP from bailing out homeowners again and again who rebuild in the same flood-prone areas. About120,000 owners have been given multiple, subsidized flood insurance payments, worth $7.5 billion, over the years. These "repetitive loss properties," as the Federal Emergency Management Agency calls them, are sometimes bought out and returned to nature, but not often enough.

Congress and FEMA need to take a lesson from towns such as Hamilton, Wash. After yet another flood of the Skagit River washed through this community of some 200 people last year, the town firmed up plans to move itself uphill to a new site.

Only a few US towns have been moved wholesale after repeated natural disasters. The idea should be encouraged in hurricane-prone areas.

NFIP should also not rescue or underwrite insurance for luxury or vacation homes, while premiums should be raised to reflect rising risks. And FEMA recommends that federally backed flood insurance be based only on threats of a 500-year flood level, not the current standard of a major flood disaster every 100 years.

While it's reforming NFIP, Congress should also adopt a proposal made in the previous House to set up a national commission to study ways to improve private insurance, given the forecasts of rapid climate change.

The federal government can't be a financial backstop for every homeowner who lives in a vulnerable area. NFIP, which began in 1968, needs tougher price signals to keep new houses out of harm's way and more incentives to move people out of older homes in flood zones.

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