Editorial: National disaster fund benefits Florida by spreading risk


If Congress doesn’t step up with comprehensive and effective legislation to confront sea-level rise and its already evident effects, then we’re sunk, South Florida.

Sunk, literally, as the ocean encroaches upon our shores in the decades ahead. And the financial toll is going to be staggering.

RELATED: Editorial: Sea-level rise is real and needs attention now

At the moment, the federal government tries to protect many Americans from the financial shock of flood damage through the National Flood Insurance Program (NFIP). But the program is in shambles and has for a long time hurt Florida more than it’s helped the state.

The program covers almost 2 million Floridians. But over the years, Florida’s policyholders have paid far more into the program in premiums than they have collected in claims.

There is a solution that makes much more sense for Floridians and all Americans — a national disaster fund, which would spread the risk and force private insurers to participate in this vital effort to protect many Americans from the huge cost of natural disasters.

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After 50 years, the flood-insurance program hasn’t aged well: It’s ineffective and deep in debt.

Congress created the program in 1968 to give property owners in flood-prone locations government-subsidized protection. The expectation was that premiums would pay for operating expenses and claims.

But lawmakers didn’t anticipate the increase and severity of flooding disasters and the aggressive development along coastlines and in areas that flood repeatedly.

Overseen by FEMA, the program is about $25 billion in debt. To cover its liabilities, NFIP borrows money from the U.S. Treasury. Storms such as Hurricane Katrina and Superstorm Sandy cost the program far more than it had in reserves.

Hurricanes in 2017 — Harvey, Irma, Maria — have added to the financial crisis. As of January, NFIP had paid more than $609 million to almost 28,000 policyholders in Florida who filed claims after Irma.

Besides the rash of costly storms, NFIP is plagued by what are called “repetitive flood loss properties.” According to FEMA, 1 percent of insured properties account for about 25 percent of the money paid out in claims.

Property owners in Texas and Florida have the majority of NFIP policies. But the numbers are not good for Florida. Last year, Florida made up about 35 percent of NFIP policies, but had received just over 7 percent of its payouts during the past 40 years. Texas and Louisiana, meanwhile, have gotten 46 percent of the payouts.

NFIP is up for reauthorization again. Congress is struggling to craft a bill that would solve the program’s many flaws.

Last year, Rep. Sean Duffy sponsored the 21st Century Flood Reform Act. The Wisconsin Republican’s bill would stabilize NFIP’s finances and increase the role of private insurers in the program.

However, the bill would have raised costs for homeowners who are paying artificially low premiums because their homes were not in FEMA-designated flood zones when they bought them. But they were “grandfathered” into the program.

Duffy wants to phase out grandfathering by 2021.

The entire South Florida House delegation voted against the bill.

“We have a lot of homes that are highly valued and it’s going to incur a lot of cost,” said Rep. Ileana Ros-Lehtinen, whose district takes in Miami Beach and other coastal areas in central Miami-Dade County.

“It’s got to be fair for everybody,” she said. “To have a home that you can’t find anybody to insure, that doesn’t do anyone any good.”

Still, the proposed overhaul passed in the House 237-189. The Senate has yet to act.

Old technology and flawed flood-zone mapping also hamper NFIP. Those FEMA maps that tell homeowners, homebuyers and insurers where flooding is most likely to occur are unreliable, says a review conducted by the Nature Conservancy, which partnered with the U.S. Environmental Protection Agency and the University of Bristol in the United Kingdom.

The study says that the FEMA maps don’t come close to capturing the true amount of flood risk. More than 40 million Americans could face 100-year flooding and the amount of property at risk is more than double current estimates, according to the study.

FEMA acknowledges the difficulty of presenting a clear picture of risk and wants to do better. After hurricanes Harvey and Irma, FEMA has been cautioning homeowners not to use its maps as reliable blueprints for risk.

“These maps are intended to inform flood insurance requirements and regulate development standards in high-risk areas,” said Eileen Lainez, FEMA’s deputy director of public affairs. “They are not intended to show absolute lines where flooding will and will not occur.”

Now they tell us.

RELATED: Editorial: Aging flood-control systems can’t protect South Florida

Ros-Lehtinen is right: The system must be fair. Right now, it’s not.

Duffy is right, too: Private insurers must play a bigger role. Right now, they’re not. A national disaster fund would help address both concerns.

First, NFIP would cease to exist. The new fund would require private insurers to participate, making them cover all disasters, including floods. The goal is to remove the federal government as the flood-insurer of first resort.

As envisioned by insurance regulators, the fund would offer “reinsurance,” which is insurance for insurance companies because a catastrophic natural disaster could bankrupt an insurer.

Florida has a working model, the Hurricane Catastrophe Fund that provides reinsurance to private insurers, who are required use it. The fund gets its money from a surcharge on property and casualty insurance policies in the state, not from the state’s treasury.

At the moment, it has $17 billion in assets. Should it run out of money, however, there is an assessment against all other insurance policies that would cover any deficit.

With a national fund, states would be required to create or maintain a similar layer of coverage for homeowners. The federal government would provide the final layer of coverage if any area were to be hit with a Katrina-like disaster.

In addition, this fail-safe would allow private insurers to diversify and invest their money elsewhere, boosting their bottom lines and lowering policyholders’ premiums.

There are pitfalls. For example, if a national fund is not based on actuarially sound costs of losses, it won’t work. The flawed FEMA maps make that clear. And local communities are going to have to be accountable, pushing back against development in vulnerable areas and hardening their building codes.

Although Harvey, Irma, Maria and the California wildfires captured most of the nation’s attention last year, there were more than 1,200 tornadoes in the United States last year. Montana saw a 5.8 magnitude earthquake in July, and the earth is trembling in Hawaii. Last year, the Ohio River overran its banks and flooded Cincinnati.

Natural disasters affect most of the nation at one time or another. A national disaster fund is the fairest way to spread the risk among insurers, the government and property owners, who would be required to participate.

Taxpayers already are providing disaster-recovery funds through FEMA. This has become a costly and inefficient model, as the agency’s debt shows.

Hurricane Irma wasn’t just another wake-up call warning that South Florida and other parts of the state remain vulnerable to sea-level rise. Hurricane Irma was yet another call to action — one that Congress should heed this time.

“The Invading Sea” is a collaboration of the editorial boards of the South Florida Sun Sentinel, Miami Herald and Palm Beach Post, with reporting and community engagement assistance from WLRN Public Media.



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