Flood Insurance Overhaul

Reps. Barney Frank (D-MA) and Judy Biggert (R-IL) are working on a bill that would reform the National Flood Insurance Program, which following Hurricane Katrina is some $20 Billion in the red.

The lawmakers introduced legislation this week that would lift the program’s borrowing authority to $21.5 billion from $20.775 billion, enough to cover claims still trickling in from Katrina victims.

It also would increase the cap on coverage for a home to $335,000 from $250,000; abolish subsidized coverage for vacation homes; and raise the maximum premium increases from 10 to 15 percent — reforms the insurance industry believes will enhance the program’s viability over the long term.

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In addition to eliminating the subsidies for vacation homes, the bill would have wiped away all of NFIP’s debts and allowed 25 percent annual premium hikes on properties that had suffered repeated losses.

It had the full support of the Senate Banking Committee but was blocked by Louisiana’s two senators, Mary Landrieu (D) and David Vitter (R), who believed it would be too onerous for Gulf Coast policyholders.

Now I am all for improving the program to make it more solvent. But let's be honest about the "onerous" burden placed on Gulf Coast policyholders. We are talking about Louisiana policyholders, many of them poor. But federal law requires

Homeowners with a federally backed mortgage who live in an area with a 1 percent annual risk of flooding are required to buy flood insurance.

If you live in a flood plain you should have flood insurance. But the problem is that unlike a lot of insurances, floods are a serious risk in some areas of hte country, like say parts of New Orleans, which sits under sea level.

So in order to prevent a burden on poor people, we are going to saddle the entire federal government with a bad debt. That is not a particularly solid system of fiscal management.