“This is beyond just a fiscal problem,” Jeb Hensarling said in 2017. “This is a moral problem.”
The former Texas congressman and Financial Services chairman was specifically addressing the federal National Flood Insurance Program.
At the time, the program was about to be tapped to pay claims by residents along the Texas Gulf Coast after Hurricane Harvey. It was already $25 billion in debt. Today, with new claims on the way, it is only $21 billion in the red, but that’s only because Congress forgave an additional $16 billion that the program owed the U.S. Treasury — owed, that is, to taxpayers.
But money is not and never has been the real issue. The ongoing failure of this program to break even is merely a sign that it is only fixing the symptoms and not the problem.
The real issue is that, year after year, federal taxpayers are spending money to induce and encourage people to build and rebuild and re-rebuild homes in unsustainable, unsafe places where they are bound to be wiped out in the next storm. This is more than just a clear case of moral hazard, it can also cause unnecessary loss of human life.
Under current law, hurricane-prone homes can file claims year after year and yet continue to be grandfathered as eligible for further taxpayer subsidies after claims are filed.
Hensarling, in a 2017 interview with the Washington Examiner, gave several examples of this, including a $115,000 home in Houston that had cost the NFIP $800,000 thanks to 16 flood claims; a $55,000 home in Baton Rouge, Louisiana, that had flooded 40 times; and a $90,000 home in St. Louis that cost the program $608,000 after flooding 34 times.
Meanwhile, flood insurance is so badly underpriced for those in known floodplains that the government has built itself an effective monopoly in the industry. No private insurer can compete, and this is one reason no private insurance is available despite the nation’s very mature and robust insurance market in nearly all other areas.
Conservatives’ attempts to reform this system before the 2018 election failed. Hensarling, who led the charge, had hoped to lower protection for million-dollar homes and disallow new construction in floodplains under the program. Hensarling wanted to bring premiums more in line with what the market could bear. He also wanted to prevent repeat claimants re-upping their coverage after two claims.
Although many House Democrats opposed Hensarling in this, it would be wrong to lay the blame at their feet. The House actually passed a version of Hensarling’s bill, but Senate Republicans from coastal states stopped it in its tracks. As conservative Republican Rep. Sean Duffy complained at the time, “[Y]ou’re only a conservative until government subsidizes your constituents.”
The dream of flood insurance reform may be gone for now, but it is not forgotten. With each passing hurricane, the argument needs to be made for reform, based on preserving life, protecting the environment, and saving taxpayers money.
