Hurricane Harvey: How subsidised insurance leads to unsafe homes

In Depth: A US federal programme may be
encouraging housebuilding on flood plains

In Depth

So, in 1968, the US government passed a bill to instigate a
National Flood Insurance Program (NFIP). The Federal Emergency Management Agency says the
program “aims to reduce the impact of flooding on private and
public structures”, and that it does so “by providing affordable
insurance to property owners and by encouraging communities to
adopt and enforce floodplain management regulations”.

While private insurers cover homes, the bills are ultimately
paid by the federal government, says the Washington Post.

“People who couldn’t be insured for flood damage before can
under the NFIP,” the Washington Post says, with the program
offering insurance to those who need it because they have a
federally backed mortgage and live in highly flood-prone area.

Cheap land

The death and destruction left in the wake of Hurricane Harvey
might seem to be a good reason for the US government to renew the
flood insurance program before the deadline passes next month.
Those in harm’s way clearly need all the help they can get from the
government.

But critics of the program blame the NFIP for the destruction
caused by Harvey, and say that its renewal will lead to further
devastation in the future.

“Houston’s horrible situation is the precise argument for why
the program needs to be wound down,” says MarketWatch. Subsidised insurance for those who
live in highly flood-prone regions provides an incentive for
companies to build housing in such areas, the site argues.

The Week US agrees. “Where a normal insurance
company would jack up the premium price to cover the high risk of
floodplain construction, thus discouraging vulnerable building
plans among those who cannot afford to cover the cost of disaster,
the NFIP will insure this construction at a discount,” Bonnie
Kristian writes. “This incentivises risky construction and
downplays the nature of the risk.”

Houston has been on the receiving end of the benefits – and the
dangers – of NFIP since the program’s inception in 1968, with risky
housing developments sprawling out into the city’s neighbouring
flood plains and swamp-filled drainage basins, which would normally
bear the brunt of major flooding.

Vox suggests that building on such cheap land
has promoted economic growth and allowed people to turn a blind eye
to the enormous risks

Climate change

Some believe the situation is unsustainable. As climate change
intensifies, the frequency but also the severity of hurricanes
could increase, meaning supposedly once-in-a-lifetime storms like
Hurricane Harvey could batter Houston several times a decade.

With more available housing, more resident have moved into
flood-prone areas and, if climate change trends increase the
likelihood of flooding, the NFIP will be “overwhelmed” In the
space of seven years, NFIP’s losses for two hurricanes – Hurricane
Katrina in 2005 and Hurricane Sandy in 2012 – equal nearly half of
all premiums paid betweeen 1978 to 2016, the Washington Post says. 

Trump’s dilemma

In August, President Donald Trump repealed an Obama-era
directive to improve flood protection standards in the face of
climate change, which dictated that those receiving federal funds
for building must consider the future effects of flooding in their
construction plans.

Trump’s decision to roll back the plan was part of an executive
order designed to streamline infrastructure construction by
“removing federal red tape”, writes USA Today. 

Yet by repealing the Obama initiative without any indication
that the NFIP will face reform, “some conservative groups [say the
repeal] would force taxpayers to repeatedly pay to rebuild
structures in flood zones.”

What next?

Axing the NFIP and returning to private flood insurance, with
its accurate risk signaling, is overdue, The Week US says: “It is
neither ethical nor practical to maintain the current arrangement
of government subsidies for real estate recklessness.”

Other’s aren’t convinced.

“It would be unfair to drop the program at the drop of a hat for
the homeowners who already live in such areas,” says MarketWatch. “That would make it basically
impossible for existing homeowners to resell their properties.”

NFIP could instead refuse to guarantee coverage of additional
properties, the site suggests. “That would put the risk back into
the private sector — where it belongs — and disincentivize building
in flood-prone areas.”  

David Conrad, an independent federal water policy consultant,
says something has to change.

“This isn’t the storm of the millennium,” he told Politico last week. “It’s going to happen again
and again.”