Some States Pay for Others' Flood Damages

by Emma Thorne & Ezra Eeman.

Twenty-five billion dollars: that’s the estimated cost of Hurricane Sandy. When all the insurance claims are paid out and the rebuilding is done, Sandy will earn its place as the second most expensive storm for the National Flood Insurance Plan (NFIP), right after 2005’s Hurricane Katrina. Who’s paying for all that damage?

Since 1978, the NFIP has paid more than $41 billion in claims and the Federal Emergency Management Agency (FEMA) has logged 105 significant flood events. A significant event is one with 1,500 or more paid losses. Scrub the timeline to see how some states get hit harder by floods and get paid more than others.

The NFIP insures 5.7 million at-risk homes around the country - properties on the coast or near rivers, properties that have probably flooded before and will probably flood again. But still, the program keeps paying out, allowing people to rebuild in the exact same dangerous areas. That’s how the NFIP found itself $18 billion in debt after Hurricane Katrina - a situation that is likely to happen again, since the program can’t absorb the full cost of Sandy. The NFIP can only take on another $3 billion in liability, far less than the estimated cost of this latest storm.

But is the NFIP equitable? The same flood-prone areas get damaged, rebuilt, damaged, rebuilt - all on the taxpayer’s dime - while residents of drier areas still pay, but never get the benefit. To be sure, it’s a constant of the insurance industry that policy owners are paying for protection they might never need; but in this case - when some places will almost definitely need help again and again - is it fair to ask American taxpayers to keep paying for their neighbors’ questionable choices? People who live in flood-prone areas are required to carry NFIP coverage, but the premiums are flat-rate: There are no real financial repercussions for homeowners who choose to keep rebuilding in the same risky spots.

And then there’s the question of efficacy: The sea level’s rising, the planet is warming, and most climate scientists agree that massive storms like Sandy and Katrina will only keep coming - bigger, stronger, and more frequently. Millions of homeowners are paying into the NFIP, yet American taxpayers will still shoulder a multi-billion dollar burden in rebuilding costs. If the program's premiums no longer cover the extensive damage caused by these “superstorms,” should the government raise the premiums so they make sense in today’s climate? Some say it might be time to reevaluate the NFIP.