NFIP

It seems the campaign by some to extend the National Flood Insurance Program to include wind is postponed until after the election.  Via the Sun Herald:

The House of Representatives last night approved an extension of the federal flood insurance program until April 30, 2009.

The bill, which passed by voice vote and is expected to go to the Senate for quick approval, effectively ends Rep. Gene Taylor’s efforts this year to include a wind program in the National Flood Insurance Program.

Seen at the Biloxi Sun-Herald:

Rep. Gene Taylor’s relentless two-year campaign to secure wind coverage as part of the federal flood insurance program is on the verge of failure, a victim of vicious opposition in the Senate, of suspicions about a new government program and ultimately, of bad timing.

"It looks like there will be an extension of the present program," said Taylor, D-Bay St. Louis, in an interview. The National Flood Insurance Program expires Sept. 30 unless Congress acts and lawmakers, anxious to help victims of hurricanes Ike and Gustav, are looking for a simple extension - with no policy changes - while they focus on the $700 billion Wall Street bailout.[…]

"I’m still hopeful we can get a deal, but with the remainder of the schedule likely to be consumed by the problems facing our nation’s financial system, the flood insurance program may be extended into next year without the multiple-peril provision Rep. Taylor and I worked to include," said Sen. Roger Wicker, R-Miss.

At least they’re remembering to extend the authorization for the NFIP, before the peak of silly season is upon us

Congress is on vacation, to start the circus of the height of campaign season.  New Orleans is watching a cousin of Katrina’s headed its way….and the NFIP is set to expire in a month.

You know, if politicians focused on doing good, rather than perpetuating their hold on power, perhaps congresscritters might have approval ratings higher than the single-digits.

Seen in a Reuters news story:

Insurance industry lobbyists worked this week at the Democratic convention to keep the U.S. government’s troubled flood insurance program from getting swept away by election-year politics.

Congress never got around to finishing work on renewing and reforming the 40-year-old program, which insures millions of U.S. homeowners in flood-prone areas.

Now, with the conventions under way and politicians hot on the campaign trail, the program is set to expire on Sept. 30, unless lawmakers can refocus and quickly work out their differences next month

Despite my prior post…perhaps someone has learned something from the aftermath of Katrina.

Friday, the Courant ran a story discussing the release of new FEMA flood zone maps for Hartford County, Connecticut.  The article contained this observation:

FEMA is also looking at levees more closely than ever. For Hartford and East Hartford, that means that areas behind the Connecticut River levees, once deemed to be at no risk of flooding, are now considered low- to moderate-risk flood zones. The federal government doesn’t require flood insurance in these areas — but FEMA is recommending it, and a private lender could require it.

For Hartford, the new zone covers 20 percent of the city’s land area — generally South Meadows, North Meadows and the eastern portion of downtown, from Columbus Boulevard to the river. In East Hartford, the new zone takes in a good deal of the town, from Green Terrace to the north, west though Great River Park and Commerce Center, east to Main Street and the area behind town hall, and finally out to Brewer Street in the southeast, Town Engineer Nick Casparino said.

This is the case even though the levees on both sides of the river are provisionally certified by the feds and millions of dollars in repairs have been made. The levees are on track for permanent certification by the Army Corps of Engineers — in July 2009 for Hartford, and March 2010 for East Hartford.

On the old maps, there’s no indication that the areas were protected by levees or in any danger of flooding; now, said Hartford City Engineer John McGrane, the draft maps show a zone emanating from the river called "shaded area X."

That new delineation, McGrane said, suggests that FEMA doesn’t fully trust levees anymore. He said the federal government used to assume levees built by the Army Corps of Engineers were infallible. Hurricane Katrina in New Orleans in 2005 blew that assumption away.

Those of you interested in where your property lies with regard to official flood zones may wish to visit FEMA’s online mapping service here.

In all the discussion since Katrina on federalization or semi-federalization of coastal storm risk in property insurance I’ve had a few qualms with the idea.  They include:

• My inner libertarian objects to government involving itself in a matter that the free market should be able to address.
    
• Most of the proposals implicitly rely on subsidization from folks who choose to live out of harm’s way.
   
• Virtually none of the proposals address some of the real problems with coastal wind exposure – that storms will be perceived as more damaging as more folks choose to live and own property in harm’s way, that property owners choose to go uninsured (and rely on government support to recover post-catastrophe), and that there are holes in coverage between homeowners/commercial property insurance and coverage offered through the National Flood Insurance Program.

The Courant has an article discussing one carrier’s idea on a more modest middle ground on the subject:

The Hartford’s plan, pitched by Chief Executive Ramani Ayer to media Wednesday, says:

• Coastal homeowners should be required to buy flood insurance, to avoid battles over what kinds of damage are covered or not by regular homeowner policies. The $40 billion Katrina spawned massive litigation concerning wind v. water damage.
• IRA-style savings accounts could be created to help people afford insurance, and states could administer subsidies for low and moderate-income coastal homeowners.
• A federal financial backstop is needed to protect insurers from a catastrophic storm, the kind that is expected to happen once in 100 years.
• States could create their own reinsurance funds, bound by federal guidelines. Insurers buy reinsurance to spread their risk of high claims. The state reinsurance funds would only kick in when the private market seriously deteriorates.
• Costs associated with the federal backstop and any state reinsurance funds would be passed directly to policyholders and identified separately on their insurance bills.
• The federal government would set guidelines involving land-use planning, risk mitigation, and disaster preparedness. States would follow the guidelines, making insurers doing business in a state eligible for help from the federal backstop.

I’m not sure that I necessarily fully agree with the above ideas – the real test would be in the details – but I must give The Hartford props for addressing some of the shortcomings I’ve seen in prior ideas.

Making flood and wind cover mandatory takes care of some of the gaps in the system, for example. 

Providing a mechanism to subsidize coverage outside the insurance mechanism also appeals to me; for quite a while I’ve had the notion that if social interests should dictate subsidization, that subsidization should be handled by the government, outside the standard insurance funding mechanisms, to permit insurers to rate as efficiently as possible.

And, it sounds like someone’s finally thinking that more intelligent coastal development (or non-development) planning might not be a bad thing – a positive development from my point of view.

Add in some harmonization between NFIP coverage terms and those found in standard homeowners and property insurance contracts…and the proposal certainly looks interesting.

Recent events in Wisconsin — specifically, the flooding and draining of Lake Delton — provide a harsh reminder that the NFIP is about more than just providing flood insurance.  For NFIP coverage to be available in a community, that community is required to abide by federal policies intended to reduce the potential devastation from flooding.

Lake Delton, Wisconsin wasn’t signed up with the NFIP.

Seen at the Milwaukee Journal-Sentinel:

Residents and landowners affected by the Lake Delton breach spent Wednesday seeking an explanation for why the community opted out of a free national floodplain insurance program that 90% of the state’s flood-prone communities have joined.[...]

The Village of Lake Delton began the paperwork just two weeks ago to rejoin the floodplain insurance program after a dispute with FEMA’s floodplain elevation maps from 2001 caused it to back out. But because of that decision, residents such as Tim Fromm, Tom Pekar and Don Kubenik were not able to obtain flood insurance - which is backed by the federal government - for the homes they built on the shore of Lake Delton within the last few years.[...]

Oopsie.  The lawsuits arising from this should be…entertaining

Seen on the wires:

The U.S. Senate voted on Tuesday to extend until 2013 a federal program that insures millions of homes against floods and to forgive $17 billion in debt the program built up during Hurricane Katrina.

In an issue of concern to major insurers such as Allstate Corp and State Farm, the Senate approved renewing the National Flood Insurance Program (NFIP) in a 92-6 vote. Last week, it rejected adding wind damage coverage to the program.

The House of Representatives last year also voted to extend the program, but added wind coverage, and refused to forgive the debt.

Now, the big question is — with a general election this fall, will anything actually happen on NFIP reauthorization?   Or, maybe another way to think of this is: who can get the most votes for getting reauthorization done…and what sort of a mess will be made in the quest to buy voters’ support?

San Friedman has a nice summary of simmering political circus surrounding proposals to add wind protection to the NFIP—a circus which bizarrely sees Bob Hunter allied with the insurance industry for a change.

I’ll suggest interested readers check out Friedman’s article if they desire to be brought up to speed.

However, there is one interesting bit of thought that has triggered a line of rambling in my mind.

But I doubt the NFIP is the solution rather than a big part of the problem. An editorial in today’s “Roanoke Times” summed it up best:

“Everything bad about the National Flood Insurance Program—it encourages development in flood-prone areas, pays homeowners to repeatedly rebuild where they should not, and forces inland taxpayers to assume risk taken by often wealthy homeowners who choose to live near or on the coast—would be magnified by a proposal to have the program cover wind damage.”

The editorial adds pointedly: “This is a rare time when corporate interests and public interests coincide…[W]hy should the federal government go where private insurers fear to tread?”

Maybe I’m’ misremembering, but I thought that part of the justification for the NFIP was that it could be a vehicle to head off future flood disasters. In return for the feds making flood cover available, local communities would be obliged to take measures to head off future flood losses, by zoning, flood control programs…essentially measures that would eventually lead to fewer properties being in harm’s way, and therefore would require less federal financial support to aid in post-disaster recovery.

If the “prevention of future loss” element of the NFIP were actually effective, I wonder if the program’s expansion into other perils would necessarily be a bad thing. Yes, I prefer free-market solutions, but having state intervention to discourage future irresponsible development in storm-prone areas isn’t necessarily objectionable to me. If government-provided cat insurance is the carrot necessary to make the stick effective…I wouldn’t necessarily hate that.

Of course, the catch to such thinking is that the NFIP hasn’t been as effective in getting folks out of harm’s way as perhaps is needed. Unless that lack of efficacy is addressed, expansion would seem to be a bad, if not idiotic, idea.

Seen in the Clarion-Ledger:

Gulf Coast senators have joined to block reauthorization of the federal flood insurance program in an effort to add wind coverage to the legislation.

Mississippi’s Republican Sens. Thad Cochran and Roger Wicker have agreed with Sens. David Vitter, R-La., and Mary Landrieu, D-La., to use a Senate procedure known as “hold” on the legislation, blocking a Senate vote, to win assurances they could amend the bill.[...]

Wicker said the federal government must offer wind coverage because “since Katrina, it is … common practice for insurance companies to not offer wind insurance at a rate that is even close to affordable.”[...]

“The private insurance market is more than capable of handling wind coverage,” said National Association of Mutual Insurance Companies lobbyist Jimi Grande. “Adding an additional peril to the NFIP (National Flood Insurance Policy) would only drive the program further into debt.”

Although it’s conceivable that government could provide cat wind cover more efficiently, and therefore somewhat more cheaply than the private market, I think Wicker underestimates what the cost of federal coverage would be, especially if the program seeks to be mostly fiscally independent of the rest of the federal government.

If affordability is a concern, well, I’m sure that folks in Wisconsin, Iowa, and North Dakota won’t mind subsidizing the wind risk faced by coastal residents.

Of course, with this being a Presidential election year, and with an electoral-vote-heavy battleground state being chock full of coastal residents….wacky lapses of good sense are definitely possible.