FEMA’s National Flood Insurance Program is the nation’s main flood insurer, created by law in 1968 as private companies stopped covering flood damage. The program insures 5.6 million properties nationwide and aims to be self-sustaining by paying claims from premiums it collects. Instead it’s running deeply in the red. A major reason, a USA TODAY review finds, is that the program has paid people to rebuild over and over in the nation’s worst flood zones while also discounting insurance rates by up to $1 billion a year for flood-prone properties.
Along with the huge losses from Hurricane Katrina, the generous benefits have forced the program to seek an unprecedented $19 billion taxpayer bailout.
“If this were a private insurer, it would be bankrupt,” said Robert Hartwig, president of the Insurance Information Institute, an industry think tank.
A USA TODAY review of FEMA records found that the owners of 19,600 homes and commercial buildings worth $25,000 or more have collected insurance payments that exceed the value of their property. The records exclude property addresses.
In Fairhope, Ala., the owner of a $153,000 house has received $2.3 million in claims. A $116,000 Houston home has received $1.6 million. The payments are for damage to homes and what’s inside.
“It’s the ultimate statement on the failure of the nation’s strategy to deal with flooding and flood risk,” said environmentalist David Conrad of the National Wildlife Federation, who has received FEMA’s Outstanding Public Service Award for promoting flood safety. “It does seem to fit Albert Einstein’s definition of insanity — to somehow expect something different when you do the same thing over and over again.”
USA TODAY also found that the owners of 370,000 second homes and rental houses get huge insurance discounts. Wealthy resort areas such as Hilton Head Island, S.C., and Longboat Key, Naples and Sanibel, Fla., have some of the largest numbers of second homes and rentals getting the discounts.
The program’s financial problems reflect a broader government reluctance to restrain benefits. FEMA leaders and some lawmakers have tried to end the premium discounts and the multiple insurance payments, “but there’s always been a few in Congress that have had enough political muscle to hold that back,” former FEMA assistant administrator David Maurstad said.
The inaction has helped worsen the program’s finances. Lawmakers would not approve a bailout “until the program was substantively reformed” to strengthen finances, Maurstad said. Read more in USA Today.