In what amounts to a “two floods and you're out” policy, the Bush Administration is proposing to pull flood insurance policies from properties with repeated financial losses that are insured under the National Flood Insurance Program (NFIP).
The proposal would allow policyholders whom Federal Emergency Management Agency (FEMA) has identified as repetitive loss claimants to make one more claim before having their policies terminated and would eliminate vacation homes and rental properties from the program altogether.
Nationally, about 2% of the NFIP-insured properties are “repetitive loss” properties, yet those properties receive about 40% of all NFIP payments.
Under the Bush proposal, flood insurance coverage would no longer be available for several thousand of these “repetitive loss” properties. These properties are located in flood plains around the country and are flooded regularly, but are not required to pay risk-based premiums. As a result, they have been rebuilt multiple times with the subsidized support of other flood insurance policy holders and U.S. taxpayers.
FEMA estimates the number of new “repetitive loss” properties has been increasing by an average of more than 1,500 a year.
The NFIP borrowed $810 million from the US Treasury between August 1995 and January 1998, according to a report by the National Wildlife Federation (NWF). The report showed that the NFIP was not enforcing important program requirements. When properties are substantially damaged, it must be elevated or removed from the flood plain. Many such homes and businesses remained as they were, according to the report.
The most costly single-family property in the program was located in Houston. Valued at $114,480, the house experienced 16 losses between 1989 and 1995 and received insurance payouts totaling $806,590. The building's value has been paid for seven times over with flood insurance claims.
Over the years, several Members of Congress have introduced legislation aimed at prodding homeowners who incur repeat losses to limit their future vulnerability. Proposals have included having the government buy high-risk properties, and levying higher premiums against owners who refuse to elevate their properties.
The most recent effort, legislation introduced by Rep. Doug Bereuter (R-NE) and Rep. Earl Bluemenaur (D-OR) was not considered during the last Congress, but may be revived this year.
The “two floods and you're out” policy is a grand slam for taxpayers. It is a golden opportunity to end this preferential treatment for a minority of properties under the program.