Why do millions of people live in dangerous coastal areas, where they’re forced to endure 12-hour traffic jams to flee Category 5 storms like Irma? Because the government hasn’t allowed free markets to work. The free market sends people a useful signal: Don’t live where you’re in danger. But the government has silenced that signal — keeping people in harm’s way.
Federal flood insurance hasn’t served its goal.
Most of us have some sort of insurance, and the price of that insurance offers important information to us. If I rack up speeding tickets, I’ll pay more for car insurance. Insurance helps us change our behavior — or, at least, be aware of how safely we act. Along coastal Florida, insurers have sent a clear message: Don’t build here.
Commercial insurers won’t offer homeowners flood insurance at any price — and they offer windstorm insurance only at a high price. This lack of coverage should deter people from settling in a storm path: For one thing, it should make it hard for them to get mortgages. Instead, the government stepped in to “help.” In 1968, Congress created the National Flood Insurance Program.
But it wasn’t supposed to be a bailout: A key point of the program was prevention. If the government was insuring people, it could also tell them how to build their houses (elevate them).
Yet federal flood insurance hasn’t served its goal. For starters, the program owes $24.7 billion to the Treasury for past claims — an enormous amount, considering it only takes in $4.3 billion a year in premiums and fees. By definition, this huge debt shows that the program hasn’t prevented catastrophic flooding.
This insurance, though, does underpin much of Florida’s development. The feds insure 1.7 million properties in the Sunshine State, worth nearly half a trillion dollars. That’s a full third of the program’s nationwide coverage. (The second-biggest state is Texas.)
The feds lose the most money on the coasts. While insurance also covers inland flooding (such as from lakes), the Congressional Budget Office — in trying to determine whether people’s premiums pay for their losses — estimates that “coastal counties show a large shortfall, and inland counties show a relatively small surplus.”
Most people pay premiums of $420 to $1,330 a year, the CBO says — nowhere near enough to cover the costs of floods in dense areas.
Where the feds fall short, the state steps in. Florida created its Citizens Property Insurance in 2002 after big insurance companies pulled back from offering wind coverage. Taxpayer-backed Citizens insures $124 billion worth of property, including more than 113,000 properties in Miami-Dade.
The state insurer can borrow money because it can tax all the state’s insurance policies, including those covering inland properties.
The cost of subsidizing coastal sprawl isn’t limited to insurance.
Without this government insurance, Florida couldn’t have grown as fast as it has — having tripled its population since before federal flood insurance existed, to nearly 21 million people.
The cost of subsidizing coastal sprawl isn’t limited to insurance. Irma and Harvey could cost a quarter of a trillion dollars in emergency aid, like food and water, rebuilding schools and hospitals and temporary shelter. With fewer people needing help, the storm would cost less.
A big storm also disrupts the broader economy for years. Texas is facing a shortage of construction workers to rebuild after Harvey. President Trump took office promising a $1 trillion renewal of American infrastructure. Any such program will now confront higher costs for materials and labor.
The argument in favor of flood insurance is that without it, only the rich could live on the coast. But the government could give people more access with more public beaches.
Plus flood insurance actually subsidizes wealthier people. The program charges second-home owners a $250 annual surcharge — but it’s not clear why people who own a second home should benefit from any insurance subsidy. (Who likes the subsidy most? Powerful vacation-home builders.)
It’s too late now to avoid huge costs after Irma. The storm will likely add billions, if not tens of billions, to the government’s flood insurance debt. Many homeowners, no doubt, will be grateful for the help their flood insurance payouts provide. But they should remember, too, that this program allowed them to build, or buy, a house in harm’s way in the first place.
This piece originally appeared in the New York Post