Miami Herald: Flood insurance program awash in red ink
Dec 1, 2009
The Miami Herald published this article on November 30, 2009
BY CURTIS MORGAN cmorgan@MiamiHerald.com Federal flood insurance has long been cheap in Florida, at least in comparison to private and state windstorm coverage. That may not last. With the National Flood Insurance Program running some $17 billion in the red after Hurricane Katrina losses, federal budget watchers have expressed growing concerns about its financial stability and rate structure.The stakes for Florida, with 2.2 million policies, are considerable.
“It’s called national flood insurance, but in reality if you take Florida and Texas, you’re talking about more than half of the program,” said Erwann Michel-Kerjan, a risk management expert at the Wharton School of Business at the University of Pennsylvania who authored a recent study on the flood rates in Florida.
A Government Accountability Office report in October 2008 singled out FEMA’s policy of grandfathering in older, more vulnerable properties at lower rates, calling it a subsidy that could force taxpayers to again bail out storm victims in another Katrina-like catastrophe. Florida has most of those properties.
FEMA spokesman Clark Stevens said paying down Katrina debts did not factor into a rate hike announced in October. He would not say if the agency was considering annual hikes, capped at 10 percent, or other overhauls.
But congressional panels are pondering options. Among them: Phasing out grandfathering, raising rates for high-risk properties, requiring multiyear policies. Michel-Kerjan said the government could also forgive the Katrina debt.
“It’s a touchy subject. At some point, we will have to make a political decision.”