In the Wake of Increased Storms, National Flood Insurance Program is Running out of Money
Still in debt from the deluge of insurance claims that followed Hurricane Katrina seven years ago, the federal government’s flood insurance program now faces billions of dollars in new claims as a result of super storm Sandy.
The National Flood Insurance Program fell $18 billion into debt after Katrina, a hole federal officials still haven’t climbed out of yet. Now, in the wake of Sandy, new insurance claims could total $7 billion for the program.
Under federal law, the program can only take on $3 billion in new debt.
To rectify the problem, Congress will need to act. The problem is that lawmakers just this summer overhauled the program by allowing large increases in premiums paid by vacation homeowners in flood-prone areas. Also, a costly federal bailout of the program would have to follow a potentially contentious showdown between Republicans and President Barack Obama over the extension of expiring tax cuts.
Some lawmakers want more changes imposed on the flood insurance program, such as requiring property owners in flood plains to pay the true market cost of being in harm’s way.
“We are now just throwing money to support something that is going to end up creating more victims and costing more money in the future,” Representative Earl Blumenauer (D-Oregon) told The New York Times.
Currently, the program insures 5.7 million homes nationwide near coastlines or rivers. Due to its existing debt obligations, it must pay anywhere from $90 million to $750 million annually to the U.S. Treasury just on the interest it owes.
The average flood insurance premium is about $615 a year. But for those in high-risk areas, the annual policy can cost from $1,200 to $3,000.
To Learn More:
Flood Insurance, Already Fragile, Faces New Stress (by Eric Lipton, Felicity Barringer and Mary Williams Walsh, New York Times)
Sandy To Test Revamped Federal Flood Insurance Program (by Roberta Rampton and Ben Berkowitz, Reuters)
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