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
- In LOUISIANA, although homeowners in the state pay less than 10 percent of the NFIP premiums nationwide, they receive nearly 40 percent of the payouts.
- MISSISSIPPI, hard hit by Hurricanes Katrina and Rita in 2005, pays very little to NFIP - about 1.2 percent of the nation’s premiums - but reaps huge rewards: about six times more than they put into the program.
- FLORIDA’s situation is nearly the exact opposite of Louisiana: The state pays just over 29 percent of the country’s flood insurance premiums, but gets under 9 percent of the payouts.
- CALIFORNIA is another interesting case, in that it pays nearly 6 percent of NFIP premiums, but ends up receiving just over 1 percent of the eventual insurance payouts.
Another way to look at the data is by calculating the ratio of claim payouts to premiums, and vice versa. This highlights the imbalance even in states whose overall premium contribution is smaller.
For example, in COLORADO policyholders paid almost 19 times more in premiums than they received in claim payouts, in WYOMING almost 16 times more.
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