Flood insurance was enacted by Congress in 1968, and required federally-insured mortgages in flood areas to carry insurance. It applied to any property located in a "100-year flood plain." The insurance was underwritten by the federal government, as there was no private flood insurance available at the time. Passage of the law was based on a plan of gradually increasing the premiums so that, over time, the premiums would become prohibitive to most people.
Sponsors of the law said it would eventually become uneconomic to continue to occupy high-risk areas, and the loss of life, property, and disaster-relief funds would decrease accordingly.
There was fly in the ointment. The plan required that premiums be raised gradually but steadily, until no one would want to build or occupy property in flood areas. The administration and the Congress soon showed us that they did not have the political will to do that. Premiums did not rise, and flood insurance simply became another marginal expense of building in high-risk areas.
The availability of flood insurance probably encouraged occupying high-risk areas, rather than discouraging it. It is likely that many in the administration and Congress today do not know the intent of the initial legislation, and they have no inclination to raise premiums for the purpose of discouraging high-risk occupancy. There is no ideology or lobby supporting an increase in premiums.
Today you can purchase flood insurance through your local agent in more than 20,500 communities, and it is not limited to 100-year flood plains. The average current rate for it is $600 per year, according to the Federal Emergency Management Agency. Twenty-five percent of the rates in high-risk areas are intentionally artificially low, to protect "grandfathered" properties. Rates for the remainder of the high-risk properties are unintentionally artificially low, and do not reflect the real actuarial risk of loss. At the end of 2011, the coverage in force was $1,278,979,768, much of it on subsidized premiums.The latest information available shows that the National Flood Insurance Program has a deficit of $17.4 billion.
In the wake of Hurricane Sandy, there is talk about building dikes and levees to protect property in high-risk areas, at a cost of billions of dollars. Instead of spending funds to protect what is essentially high-risk behavior, a return to the original intent of the legislation would eventually reduce the exposure to flood damage.
Returning to the original intent, however, is not likely. The flood insurance program was renewed through Sept. 30, 2017, by legislation signed on July 6, 2012. If the original intent will not be implemented, at the least rates should be increased to reflect the real actuarial risk. If you want to reduce loss of life and property by floods, this is a good place to start. It may even contribute to lowering the deficit.
About the author: Kennard Weaver is a retired partner of Faegre Baker Daniels, an international law firm. His career included a period in the Office of General Counsel, United States Small Business Administration, Washington, D.C., where his assignment included monitoring and reporting on legislation pending in Congress. He was elected to the Northwestern Michigan College board in November.
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