Automobile Insurance | Does Flood Insurance Just Make Things Worse?

August 29, 2010 – 12:20 am

f2224f2269667727c8061a82da0f46af 250x250 Automobile Insurance | Does Flood Insurance Just Make Things Worse? When Hurricane Katrina made landfall in southeastern Louisiana on August 29, 2005, it caused extreme flooding up and down the Gulf coastline. Four years later, the Gulf has made a dramatic recovery-thanks in part to the billions of dollars in aid sent via the national flood insurance program. The hurricane certainly underscored the need for federal aid in the event of a natural disaster. But was the federal flood insurance program the best way to get aid to those in need?

Some background: The National Flood Insurance Program, run by FEMA, provides insurance to homes that lie in floodplains. These policies are almost always the homeowner’s only option, since private companies rarely offer flood insurance. That means the government is taking on a large number of risky policies, but it can’t take measures to bolster its bottom line, like increasing rates, eliminating coverage for the most disaster-prone properties, or holding reserve funds. Even the process of updating floodplain maps is contentious and politicized. The end result is that the government has to borrow billions to pay out when disaster strikes-$19 billion in the case of Katrina.

What’s more, distortions in the program mean that it doesn’t always direct taxpayer dollars to flood victims who need the most help. A good portion of the funds ends up benefiting owners of expensive homes at significant cost to taxpayers. (Over the past ten years, excluding Katrina, the wealthiest counties in the Gulf filed 3.5 times as many claims-and received $1 billion more in payments-than the poorest counties.) Worse, as it’s currently structured, the

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