Thankfully, at least one impending crisis has been averted. President Donald Trump signed legislation that includes an extension for the National Flood Insurance Program that will keep it afloat until Dec. 8. Now it's time for Congress to finally come up with a reasonable solution that it has stubbornly, and illogically, avoided for years: Creating a national catastrophe fund.
The commonsense principles behind the idea are twofold. First, a national fund would spread the risk across state lines, covering floods, earthquakes, tornadoes, wildfires and other disasters that can potentially bankrupt thousands of homeowners in a single day. Second, taxpayers across the nation are already funding the recovery from these disasters less efficiently through tax dollars that are flowing through the Federal Emergency Management Agency.
The catastrophe fund could provide private insurers a safety net by purchasing reinsurance and, thus, passing the savings on to consumers through lower premiums. The fund could also have a pool of money set aside for the immediate needs of victims in the wake of storms such as Harvey and Irma.
In Florida, the fund would also eliminate the increasingly unfair chatter in Congress about increasing NFIP rates to what are supposed to be actuarily sound levels. This was attempted once before with the 2012 Biggert-Waters Act, and it briefly paralyzed the real estate market in coastal communities. It was particularly hard on Florida, where the ballooning rates were not close to being historically valid.
Studies have long shown Floridians have put far more money into NFIP policies than we have ever taken out. As of this summer, Florida accounted for about 35 percent of all policies and yet had received only 7.28 percent of payouts in the last 40 or so years. To unduly penalize the Sunshine State by jacking up rates to unreasonable levels would be an unfair burden to homeowners and might defeat its own purpose. The number of NFIP polices in Florida has been dropping in recent years, and further premium hikes would only exacerbate the problem.
Legislators might be able to generate bipartisan support for a catastrophe fund by pursuing other more conservative solutions, including flood mitigation programs. That means encouraging raising the elevation of homes where possible; no longer building where it's inadvisable; and even buying properties where repeated flood losses have exceeded a structure's value. Those are sound options that minimize risk in a more measured approach than wholesale premium increases.
It is true that Southern coastal states have accounted for a large share of the NFIP's current debt. Louisiana and Texas alone have received 46 percent of the nation's flood payouts, and that portion will no doubt rise when Hurricane Harvey's toll is calculated. But it is grossly unrealistic to expect Florida, with more than one-third of the NFIP policies, to help rescue the program through even higher rates.
The rest of the nation sure seems to like Florida when it comes to playing on our beaches, visiting our attractions or enjoying our waterfront restaurants and bars. Those tropical amenities come at a cost. And the residents of this state should not be expected to shoulder that entire burden, particularly when Florida is already providing an outsized share of flood insurance funds and getting so little in return.
Floridians lose on flood insurance
Floridians get far too little return from federal flood insurance, which Congress plans to reform before December. Floridians represent almost 35 percent of the total number of policyholders now but have received just 7 percent of the total flood insurance payouts over the last 40 years. How is that fair?
State Portion of payouts Portion of policies
1978-2017 July 2017
Louisiana 33.95 9.92
Texas 12.04 11.98
New Jersey 10.43 4.61
New York 9.34 3.68
Florida 7.28 34.99
Mississippi 5.29 1.29
Source: Federal Emergency Management Agency