Despite the relief local homeowners got as flood insurance reforms were scrapped earlier this year, the National Flood Insurance Program is still in trouble.
Just as Hurricane Betsy helped seal the fate of private flood insurers in 1965, the recent round of devastating storms has kept the program buried under $24 billion in debt.
“This feels like a total victory, but all we have done is get back to zero,” Michael Hecht, chief executive at Greater New Orleans Inc., said to the South Central Industrial Association in Houma last week.
The recent failures to right the flood insurance program are only the latest chapter in a saga that has tried for decades to avail the pain floodwaters cause homeowners in south Louisiana and other low-lying areas.
“The National Flood Insurance Program established building standards for flood prone areas to limit communities' exposure to flooding and rewarded responsible homeowners with affordable flood insurance that was no longer available in the private market,” U.S. Sen. Mary Landrieu, D-La., said in a speech on the Senate floor following the passage of the Homeowner Flood Insurance Affordability Act earlier this year.
“Prior to Hurricanes Katrina and Sandy, NFIP was basically self-sustaining with an average annual deficit under $20 million over that 26-year span,” Landrieu said.
The steady finances that had sustained the program through four decades came to a grinding halt when Hurricane Katrina came ashore in 2005.
Hurricanes Rita and Sandy only exacerbated the problem.
The persistent financial problems extend to the root of insurance, not just as a government program but as an ideology.
By sharing common risks across a broader pool of individuals, insurance helps alleviate personal disasters.
If a flood takes away a person's greatest asset, insurance effectively provides a collective disaster relief effort to get those people back on their feet.
But unlike house fires or car crashes, flood risk is less equally shared among a population. Furthermore the damage comes in waves, not singular occurrences, that create uneven pressure on insurance resources.
The inherent inequality in payouts makes for financial volatility for insurers and the flood insurance program, as well as fodder for opponents to publicly funded insurance.
Landrieu and U.S. Sen. David Vitter, R-La., as well as U.S. Rep. Bill Cassidy, have emphasized the need to sustain a publicly funded flood insurance program, which was created in 1968 after many insurance providers stopped providing flood insurance.
Groups like smartersafer.org, a group of environmental and fiscally conservative organizations, opposed delaying insurance price increases on the ground that homeowners in risky areas should be forced to pay for their increased risk.
A report by Justin Pidot of the Georgetown University Law Center favors private insurance as a more efficient option.
“There is no convincing evidence that hurricanes represent an inherently uninsurable risk or that private companies lack the capacity to handle coastal disasters,” Pidot wrote. “While many citizens and elected representatives are understandably concerned about higher insurance rates and market cycles that temporarily leave some property owners uninsured, at the end of the day these hurdles are not inherently problematic if they accurately reflect the risks associated with building in hazardous areas.”
Cassidy included an amendment in the affordability act that would create a type of fee to build up reserve funds. A similar 12 percent levy on insurance policy holders exists in France.
The Federal Emergency Management Agency meanwhile has been instructed through the act to take into consideration more of the protective infrastructure, such as levees.
Premiums, too, will still rise, just more gradually and under the consideration of redrawn flood maps.
“The $24 billion debt incurred as a result of 2005 and 2008 storm seasons was the driving force behind the rate reforms in Biggert-Waters, which required NFIP policyholders, not American taxpayers, to pay down that debt and establish a reserve fund for future catastrophic events,” Landrieu said. “Our bill does not change that, it merely gives responsible policyholders a little more time to adjust to the higher premiums they have to pay as a result of Biggert-Waters.”