The National Flood Insurance Program (NFIP) has since 1969 subsidized flood insurance in flood-prone areas, where people who live in high-risk areas couldn’t otherwise afford to.
Previously set to expire at the end of September, President Donald Trump temporarily extended the program into December.
Claims resulting from hurricanes Harvey and Irma, which tore through coastal areas along Texas and Florida in August and September, are expected to hit the tens of billions.
But the program, overseen by the Federal Emergency Management Agency (FEMA), is already $25 billion in debt to the Treasury Department and has less than $2 billion on-hand to cover claims.
The Government Accountability Office best summarized the problems with FEMA’s meddling in the insurance marketplace this way—
“Since the program offers rates that do not fully reflect the risk of flooding, NFIP’s overall rate-setting structure was not designed to be actuarially sound in the aggregate, nor was it intended to generate sufficient funds to fully cover all losses.”
Outdated policy and claims management placed the program at risk, according to a 2017 report by the agency.
Draining the program are grants—in place since 2004—to alleviate the risk associated with repetitive flood claims. FEMA oversees up to $10 million in grants annually to aid states with properties that have claims under the NFIP. The state Department of Natural Resources oversees grants to South Carolina.
The state has 1,295 repetitive loss properties and 46 severe repetitive loss properties, as of August 2016, according to the public policy organization, Pew Charitable Trusts.
Repetitive loss properties, under the NFIP, have seen at least two claims of more than $1,000 in a 10-year period. Severe repetitive loss properties have seen at least four claims exceeding $5,000.
The program covered $95.3 million for 6,788 claims in the state resulting from Hurricane Matthew in 2016, according to NFIP data collected by the state Insurance Department.
More than 800 properties in Florida were tied to at least five flood insurance claims from 1978 to 2011.
One-fifth of the most frequently flooded properties are in Florida and Texas.
The federal government is notoriously bad at two things—protecting people against risk and shielding the taxpayer from debt. This program fails at both.
Sources: Houston television station KPRC, Government Accountability Office, South Carolina Emergency Management Division, Pew Charitable Trusts, South Carolina Department of Insurance, The Houston Chronicle, The Wall Street Journal