Thanks to federal subsidies, the price of flood insurance, unlike homeowners’ insurance, does not reflect the real risks involved. Flood insurance subsidies ensure artificially low insurance rates, especially for the highest-risk properties. When big storms hit, taxpayers end up bailing out private owners. It is an expensive program. Today, the National Flood Insurance Program is $24 billion in debt to the Treasury Department. If, as multiple reports predict, climate change should lead to more floods, the costs will rise.
Subsidized flood insurance mainly helps middle-class and wealthy Americans. Some of the most expensive mansions in the nation are beachfront properties. According to the Government Accountability Office, about 600,000 of the nation’s 725,000 subsidized policies are in counties that rank in the top 30 percent for home values as of July 2013.
No other industrialized nation underwrites flood risk as generously as the United States does, and for good reason. Subsidies encourage building in flood-prone areas, undercut private competition, and waste public resources.
Getting rid of wasteful programs is never easy, but in 2012, Congress wisely passed reforms to require a gradual move toward market rates based on flood risk. But when rates began to rise constituents and real estate lobbyists complained. Congress quickly back-pedaled. Liberals and conservatives came together, and, on March 21, President Obama signed the Homeowner Flood Insurance Affordability Act, reinstating many of the old costly flood insurance subsidies till at least 2017.
Why did this happen? Consider the contradictions between the quick, bipartisan agreement over flood insurance subsidies and the contentious, year-after-year battles over the Affordable Care Act. After all, the Affordable Care Act has at its heart a large federal government system of subsidies for health insurance.
House Republicans have voted some 50 times to repeal the Affordable Care Act on the grounds that the federal government should not intervene in private insurance markets. They argue that taxpayers cannot afford to pay for health insurance subsidies and that giving below-cost health insurance to poor people creates incentives to use unnecessary health care. Yet these considerations go out the window when it comes to showering federal largesse on coastal homeowners.
Almost everything the enemies of Obamacare say about health insurance is actually true about flood insurance. Below-cost flood insurance creates incentives to build in dangerous areas, encourages risky decisions, restrains the private market unnecessarily, expands the federal government, and adds to the deficit.
What’s the difference? Could it be the clout and economic privilege of the citizens with seaside homes – and the comparable lack of clout of Americans without health insurance?
The position of many congressional liberals is equally puzzling. Why support a program that mainly benefits upper middle-class and wealthy people, when safety net programs and infrastructure spending are on the chopping block? And why support a program that will only make dealing with climate change more difficult?
Sadly, the passage of Homeowner Flood Insurance Affordability Act is perhaps the single most relevant piece of legislation the present unproductive Congress has passed on climate change. It does exactly what the United States needs least, providing federal funds to encourage mainly wealthy people to buy and build homes in the places most likely to be hit by floods. That so many in Congress cannot see this – or do not care, because they are so beholden to their well-off constituents – is discouraging indeed.
Jennifer Wriggins is the Sumner T. Bernstein Professor of Law at University of Maine School of Law and is currently a Visiting Scholar at George Washington University School of Law. She teaches insurance law and is the author of the book The Measure of Injury: Race, Gender, and Tort Law (with Martha Chamallas) and numerous articles on insurance law. She is a member of the Scholars Strategy Network.