Congress' Multi-Billion Beach Life Subsidy
A congressional bill to provide wind insurance in storm-prone areas could leave taxpayers paying to subsidize coastal homeowners.
For the past several years, Congressman Gene Taylor (D-MS) has been on a mission to add wind damage coverage to the National Flood Insurance Program (NFIP), which is already swimming in red ink.
His legislation, called the “Multiple Peril Insurance Act,” was slated to be voted on by the House of Representatives twice in the weeks before Congress left town for its August recess. The Democrats’ Daily Whipline announcing the floor schedule urged a yes vote on Taylor’s bill, but luckily for taxpayers, both times the leadership decided to pull the bill for lack of support.
Taylor and the Democrat leadership are concerned that it is hard for folks living in storm-prone coastal areas to get reasonably-priced wind insurance from private insurance companies.
Well, there is a very well understood reason for this. It is called RISK. Homes built in hurricane country are at high risk of exposure to wind damage.
With NFIP already $18 billion in the red and, according to a recent Government Accountability Office (GAO) report, unlikely to ever repay what it owes to the U.S. Treasury, the notion of adding wind insurance to this already troubled program should make any taxpayer cringe.
The biggest problem with NFIP is repeated claims for properties that suffer flood damage over and over again. Because of this, 1 percent of the covered properties account for almost 30 percent of the claims paid out by the program. The number of “repetitive loss” homes has more than doubled in the last 15 years.
A recent Houston Chronicle story revealed that between 1977 and 1995, NFIP paid out $806,591 for repeated storm damage to a suburban Houston home that was valued at $114,480.
Now, imagine this same program trying to provide low-cost coverage for beachfront homes that are regularly exposed to hurricanes and other coastal storms.
It stands common sense on its head to shift risk and costs away from the owners of coastal properties who are incurring them, and onto those Americans who live inland—far away from the risky ambiance of the shore.
Beyond the legislation’s fiscal insanity and lack of fairness, it is equally bad from an environmental perspective. Taxpayer-subsidized wind insurance encourages building in environmentally sensitive coastal environments, particularly wetland areas that would otherwise provide a natural buffer against storms.
Congressman Taylor took umbrage at environmental group opposition to his bill and sent a harshly worded letter to all of his fellow House members calling environmental opposition to his bill “offensive.” He accused environmental groups of siding with the insurance industry to deny coastal residents access to “reasonably-priced hurricane insurance.”
In the same letter, Taylor also claimed that under his bill NFIP would charge actuarially-sound premiums. If the risk exposure was such that “reasonably-priced” premiums would also be “actuarially-sound,” then why is private insurance too expensive or non-existent, and why are state efforts to fill the gap breaking under the weight of liability exposure?
The only real solution is for individual property owners, real estate developers, and coastal communities to act responsibly and minimize the risk of storm damage through smarter building standards. That means storm-conscious siting and design of homes, storm-hardened construction, and preserving wetlands and other natural buffers.
That prudent solution, unlike Congressman Taylor’s costly beach house bailout, would not only lower the cost of insurance premiums, it would protect homeowners from having to endure disruptive and heartbreaking storm damage in the first place.