Open Market, Better Service

By Daily Editorials

May 6, 2016 4 min read

Heavy storms and high waters killed at least seven people in Houston, Texas, last month, and caused at least $5 billion in damage. Houston's woes are simply the latest in a string of flood-related tragedies that hit the country in recent months.

Many of the areas have been, or will be, declared federal disaster zones. That will pave the way for relief money from Washington, D.C. State governments will help their people as well.

Beyond that, though, victims can recover and rebuild through flood insurance — if they have it.

That's a cautionary tale for the rest of us.

You can buy flood coverage from an agent just like any other type of insurance policy, yet the only provider is the federal government. And the program has been overwhelmed in recent years.

In February 2015, the U.S. Government Accountability Office reported in its biennial update that the National Flood Insurance Program was $23 billion in the hole as of the end of 2014. The report said that debt was up from $20 billion two years earlier.

According to the GAO, that is not how the system is supposed to work. In theory, policyholders' premiums fund the NFIP, but, as the agency dryly acknowledged, "the program was, by design, not actuarially sound."

On top of that, according to the GAO, Federal Emergency Management Agency, the agency that oversees the NFIP, spent seven years and $40 million in developing a new claims management system, but scrapped it in November 2009 after officials determined it would not work. As it stands, FEMA, whose financial issues have also resulted from lax oversight of contractors, relies on a 30-year-old computer system to administer the NFIP.

"FEMA is unlikely to generate sufficient revenue to cover future catastrophic losses or repay billions of dollars borrowed from Treasury," the GAO report concluded. "Congress should continue to consider changes to the program that further address the competing goals of financial solvency and affordability."

Thanks to U.S. Reps. Dennis Ross, R-Fla., and Patrick Murphy, D-Fla., Congress has a chance to do just that.

Last week, the House passed the Flood Insurance Market Parity and Modernization Act, sponsored by Ross and Murphy, by a vote of 419-0. The measure would require federal agencies to accept flood insurance policies issued by private insurers, as regulated by state insurance commissioners. The coverage is even valid if the insurer is located in a different state than the property covered by the policy.

Expanding the market for flood insurance is necessary for two other reasons.

First, more private-sector involvement would surely help reduce rates, which can between $700 and $1,200 a year, and tailor coverage to a wider swath of a state's population. That coverage will likely concentrate on coastal areas, but people in low-lying areas with a generous number of local waterways could benefit from having such insurance and having an increased number of providers to purchase it from.

Second, there are risk-takers who don't think they need flood insurance because they live far from the water. The federal government reports that people who live outside a mapped floodplain file at least 20 percent of NFIP claims, and one-third of requests for flooding-related federal disaster aid. Just because you're not near water doesn't mean you won't be flooded.

The benefits available from introducing private insurers under the Ross-Murphy bill — more competition, updated claims processing, better contractor oversight, relief for taxpayers — should pass the Senate quickly and be forwarded to the president for his signature.

REPRINTED FROM THE JACKSONVILLE DAILY NEWS

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