It is heartbreaking for me to see the latest storm's devastation on the coast of Massachusetts. I love the shoreline and it's sad to see people losing their homes. But what really brings a tear to my eye is that I'm going to pay for the repairs or reconstruction of some homes and I won't ever step foot in them. You'll pay some too and we should not expect an invite for two weeks in July or August. Also, we may have paid to rebuild these homes once before and still no invite.
You and I are technically an insurance company. Our tax dollars subsidize the National Flood Insurance Program. The NFIP was created by congress in 1968 and is taxpayer subsidized insurance for people who live in areas prone to flooding. Before that, you purchased private insurance if you lived in an area that floods. The problem was that many companies suffered big losses, like after a hurricane, so they either folded or stopped writing flood insurance. That's when Uncle Sam stepped in and created a welfare program that helps people to live on the coast, near a river, or a place that is hit by hurricanes. Opponents of creating another government hand out said, if private insurance companies wouldn't sell policies to people who wanted to live in flood zones, why should the government? Uncle Sam still went forward.
In just the past three years, the NFIP has borrowed 17 billion dollars from taxpayers. The head of the program says it will take about 20 or 30 years to pay back. This is in addition to the regular subsidies that are paid into the program from public coffers. Homeowners pay some premium for NFIP insurance, but it does not cover the total cost of losses. In 2003, the general accounting office determined that taxpayers shell out 200 million dollars a year to pay for repeat reconstruction of homes that have been destroyed and rebuilt more than once.
I'm not saying that we should cut these people off and allow them to fall into the sea. I have an exit strategy. The NFIP insurance should only cover the cost of the loss, not a reconstruction. This will be more expensive but it will save money over time. If the homeowner decides to rebuild, they do so at their own risk, no more insurance. Also, any new construction or significant remodeling of an existing structure will not be covered. This provision has already been applied on a limited basis. Finally, premiums must be increased gradually to help close the gap between them and the losses. I don't know if private companies would return to writing flood policies, but I'm sure they won't while the government is involved.
There's one more point here. The National Insurance Flood Program is under the Federal Emergency Management Agency. That's obvious when you hear the complaints of New Jersey residents who are still filling out paperwork for claims related to super storm Sandy.
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