Apr 27 2009

Flood insurance still massive boondoggle

A NEW report on the bankrupt federal flood insurance program illustrates — yet again — why the program is a black hole for taxpayer dollars.

The inspector general's office of the U.S. Department of Homeland Security examined properties that have repeatedly flooded, triggering multiple federal flood insurance claims. These "repetitive loss" properties — many of which are located along the Gulf Coast in Alabama and Mississippi — have played a key role in driving the federal program more than $17 billion into debt.

In 2004, Congress tried to reduce the number of repeat claims by setting aside money to help homeowners in high-risk areas either elevate their houses or move to higher ground. The law was supposed to impose higher premiums on those who remained in flood-prone locations and didn't elevate their houses.

Repetitive loss property owners should be paying higher — much higher — premiums. Flood insurance premiums for many of these houses are about 60 percent lower than they would be if the charges were based on actuarial risk.

In other words, federal flood insurance is a subsidized benefit for the relatively small number of people who own houses in places like Dauphin Island where storm surges pose a frequent flood threat.

Two years ago, an official with the Federal Emergency Management Agency, which oversees the flood insurance program, told the Senate that little had been done to reduce claims from repetitive loss properties. The new report confirms that the 2004 law didn't stanch the flow of red ink from properties that represent about 1 percent of all those covered by flood insurance but that account for almost 30 percent of the claims.

To highlight some of the more outrageous losses from high-risk properties, the inspector general's report included photos of four Dauphin Island vacation homes that received a total of $1.57 million in flood insurance payments from 1979 to 2005. Previous studies of the flood insurance program singled out houses that have been rebuilt almost a dozen times.

The report on repetitive losses should motivate Congress to finally get off the dime and pass a flood insurance reform bill. Sen. Richard Shelby, an Alabama Republican, and Sen. Chris Dodd, a Democrat from Connecticut, have been pushing for reform legislation that would, among other things, raise caps on subsidized premiums, phase out subsidies for some vacation houses and businesses, and require the updating of flood-risk maps.

Unfortunately, the Shelby-Dodd bill has stalled amid diversions such as an ill-conceived proposal from Rep. Gene. Taylor, D-Miss., that would compound the flood insurance disaster by adding wind coverage to the program.

Sens. Shelby and Dodd want to write off the program's $17.5 billion debt and start over with coverage that requires policyholders to pay premiums more in line with the risk of owning property near the coast or along flood-prone rivers. The latest report on the flood insurance program provides billions of dollars worth of reasons for prompt action.