Can We Stop Subsidizing Flood Insurance?

by Stuart Shapiro

As President Obama and the Republicans look for budget cuts, Mother Nature has presented an excellent suggestion.

Early estimates suggest that Hurricane Sandy will rank as the nation’s second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its onerous debt.

By all means, the program should pay out claims for existing policies.  But as Orrin Pilkey points out, we need to stop making payouts like this a regular occurrence by stopping the subsidization of building in flood prone areas and insurance for doing so.

But this “let’s come back stronger and better” attitude, though empowering, is the wrong approach to the increasing hazard of living close to the rising sea. Disaster will strike again. We should not simply replace all lost property and infrastructure. Instead, we need to take account of rising sea levels, intensifying storms and continuing shoreline erosion.

There are things the market does well and things that it doesn’t.  Discouraging people from building houses in areas made more vulnerably by climate change by charging huge premiums is one of them.  There is no need for the government to correct this.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.