Four nonprofit groups want National Flood Insurance Program to end

John Egan

Four nonprofit organizations are urging abolishment of the National Flood Insurance Program, which is the main source of flood insurance for most Americans.

In a report called Green Scissors 2011, the organizations – environmental group Friends of the Earth, government-waste watchdog Taxpayers for Common Sense, consumer watchdog Public Citizen and free-market think tank The Heartland Institute – say the federally subsidized flood insurance program “is a disaster for citizens and the environment.”

Thousands of homeowners affected by Hurricane/Tropical Storm Irene have flood insurance policies through the National Flood Insurance Program. Photo credit: FEMA

Flood insurance program has ‘utterly failed’

The groups complain that the federal program has offered policies at rates that don’t match the flood risks of covered properties and that are well below rates for private insurance. As a result, the program has encouraged extensive development in flood-prone, environmentally sensitive areas, the report says.

Furthermore, the report points out that the National Flood Insurance Program (NFIP) is about $18 billion in debt. “This entire debt, nearly all experts agree, will eventually have to be paid by all taxpayers instead of just the individuals who benefitted,” the report says.

The groups stop short of calling for an immediate end to the program. Rather, they say, the program should be phased out in favor of private-market insurance.

“The flood insurance program has utterly failed in its efforts to make the country safer or to run itself in a financially responsible way,” Eli Lehrer, vice president of The Heartland Institute, tells InsuranceQuotes.com.

Eliminating program would be ‘foolish’

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, a trade group, dismisses the Green Scissors report. Grande says the organizations behind the report don’t “understand insurance or the NFIP. Abolishing it would be foolish.”

Charles Symington, senior vice president of government affairs at Independent Insurance Agents & Brokers of America, a trade group, says elimination of the NFIP would mean an even bigger drain on federal taxpayers in the form of direct disaster aid.

Unless Congress acts before then, the National Flood Insurance Program is set to expire Sept. 30. Legislation passed by the U.S. House and pending in the U.S. Senate would extend the program. The legislation also would restructure how flood insurance rates are set to better account for flood risks, leading to increases of up to 20 percent in NFIP flood insurance premiums. The Heartland Institute’s Lehrer says the bill is “good but not perfect.”

U.S. Rep. Candice Miller, a Michigan Republican, has failed so far in her push for legislation that would eliminate the program. She has called the program “a typical Washington boondoggle with an endless bureaucracy overseeing out-of-control spending.”

Letting program expire would be ‘disaster’

The National Association of Mutual Insurance Companies is among the organizations pressing Congress to continue the National Flood Insurance Program. Letting the program expire “would be a disaster,” Grande says.

Standard homeowner’s insurance policies don’t cover flood damage. The NFIP provides flood insurance for about 5.6 million American homes and businesses; a few private insurers also sell flood insurance policies. Buyers of homes in designated flood areas are required to get flood insurance if they’ve got federally backed mortgages.

“Without this program, millions of Americans will be without flood insurance for an uncertain amount of time,” the National Association of Realtors says. “We cannot leave these property owners in the dark, and we certainly cannot afford to cause any more damage than has already been done to the housing market.”