Flood insurance based on fantasy

USA Today editorial: Away from New Orleans, with its unique geography and dependence on levees, discussion of hurricanes inevitably turns to insurance. After Katrina struck in 2005, there was much talk about reforming insurance programs in coastal areas to protect taxpayers and promote responsible development.

…The National Flood Insurance Program is a near-perfect illustration of what's wrong in Washington and why. In a cover story Thursday, USA TODAY's Thomas Frank exposed a new round of absurdities. The program's premiums are based on what coastal-state lawmakers think they should be, rather than what is needed to fund payouts after major storms. The program is now $19 billion in the hole as the result of Katrina and other storms. The Federal Emergency Management Agency, which runs it, has no plans for doing anything but passing this red ink, and future losses, on to taxpayers.

National flood insurance is not only a drain on the federal treasury, it also encourages overbuilding in flood-prone areas, which begets even more losses. Frank found 19,600 properties where repeated claims have resulted in payouts greater than the property's value. In one case, a Mississippi home valued at $69,000 has been flooded 34 times since 1978, prompting insurance payments totaling $663,000.

One option to fix this ludicrous situation is to phase out the federal program and turn it over to private insurance companies. … A second option would be to change the program so it could charge premiums that roughly approximate actual risk from storm-related losses.

…Irresponsibility extends to the state level, where Florida has decided that a government takeover of the homeowners insurance business was in order. When rates went up after the 2005 hurricanes, Gov. Charlie Crist signed legislation turning the state-run Citizens Property Insurance Corp. from an insurer of last resort to Florida's biggest property insurer. Meanwhile, the state's Hurricane Catastrophe Fund, the main re-insurance pool used by public and private insurers, has nowhere near the reserves needed to survive a major storm…..

Estimated flooding within city limits in New Orleans, St. Bernard Parish, and Jefferson Parish, Louisiana, in the aftermath of the levee and floodwall failures during Hurricane Katrina. The raw satellite imagery shown in these images was obtain from NASA and/or the US Geological Survey. Post-processing and production by http://www.terraprints.com