It’s Time to Rethink Flood Insurance

Flood insurance fights are brewing in the House of Representatives. Late this September, the National Flood Insurance Program (NFIP) comes up for reauthorization, giving Congress an opportunity to overhaul this broken, inefficient, and unfair program.

Since its founding in 1968, the NFIP has subsided a significant amount of property in flood-prone parts of the country. This trend has increased to the point where private flood insurance options are nearly completely out of the picture. According to Heritage policy expert Diane Katz, the NFIP has shapeshifted into a “monopoly.”

The NFIP is over $25 billion in debt, largely due to generous subsidies which support the “lifestyle preferences of select few who live in flood zones.” These harmful subsidies will continue to skyrocket if Congress ignores the program’s moral hazard problem. When the government guarantees coverage, people don’t exercise good judgement when building or buying homes. For example, some homeowners who refuse to move from flood-prone areas have collected on NFIP insurance over 17 times without seeing premiums go up!

To combat this moral hazard, Congress should reduce subsidies and move towards a private system with insurance rates that reflect true costs.

The politicization of risk mapping also creates tremendous concerns. Special interests and stakeholders should not get to classify what constitutes risky behavior. The Federal Emergency Management Agency’s (FEMA) incompetence compounds this issue. The agency itself admits that it lacks the proper water depth data to determine fair insurance rates.

Reauthorization seems inevitable, as mortgage agreements for coastal homeowners often require some form of insurance. But while the ultimate goal must be privatization, not reauthorization, Katz offers several changes which could help.

  1. Private companies must have a chance to offer competitive rates. Competition produces fairer rates for all.
  2. US Treasury officials should look into figuring out a way to combat the $25 billion dollars of debt the NFIP has accrued. A reauthorization that increases debt adds to an already unsustainable debt burden.
  3. FEMA needs to figure out better, fairer ways to measure risk. At the very least, it must increase data collection so that it knows which locations are more likely to flood.


By moving from a government controlled monopoly system to a private system, Congress can unleash flood insurance competition and choice, ensure property owners are responsible for their own decisions and protect taxpayer dollars.

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