Why the government's flood insurance program is underwater
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This is the indicator from planet money. I am pretty hersh .

and i'm willing wong. We've been hearing a lot about flooding in the news lately, catastrophe hic floods in spain. And closer to home this week, tropical storms and heavy rains are soaking lousianner southeast texas, missouri and oklahoma.

Insurance isn't the first thing that comes to mind when you anticipating a flood, but american homeowners who do check their home insurance policies will almost certainly find that they are not covered. That's because most insures in the U. S. Do not cover flood. In fact, prety much the only place you can get flood coverage from the government through the nfip, the national flood insurance program.

because it's basically the only game in town. You would think the N F I I P would be going game bastard. But the program is not doing well. The nfip frequently runs out of money and has to ask congress for alone.

The result is that the american taxpayer is increasingly on the hook for payments to flooded home owners. On today's, we'll find out why that is and learn why the national flood insurance program is struggling.

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Flooding has become something of a fact of life for the people who live close to the winnest sky river, which runs alongside the time of waterbury in vermont.

IT flooded in july twenty twenty three. IT flooded in december twenty three, and then IT flooded again in july. This past year. This is been airs.

His house was built by his great great grandfather in downtown waterbury in eighty ninety two. Back then, the windows sq. River didn't flood that often.

The first big flood in water very happened in one thousand nine hundred, and twenty and seven water backed up into the town, and IT was twelve to fifteen feet deep. And there's a story of my grandfather as a ten year old child, going out of the second story, when in a robot to escape to safety. And you think .

that this experience might have convinced bs. Grandfather to get flood insurance for his house.

but no, you know, my grandfather didn't believe in IT. He he saved money, had a bank account that he set aside, put money into thinking that I would be a Better deal for him to self ensure.

The fact is, though, that if grandpa irs had wanted to get insurance from a regular insurance company, he wouldn't have been able to get IT.

Yeah, that's because one thousand nine hundred and twenty seven was also the year of the great mississippi river flood. IT caused so much damage and cost insurance companies so much money, that insurer stopped offering flood coverage to hood's almost hold together. Caroline cusco is the chief economist s of the environmental defense fund and advocates organization.

The private sector doesn't want to offer flood. They've had lots of opportunities to provide flood in turns, and they're not interested. It's too risky.

For nearly forty years, IT was almost impossible to buy flood insurance for your house. And then in september one thousand hundred and sixty five, a strong hurricane barrels across the florida keys into the gulf of mexico, where IT hammer the Luciana coast line.

They called that storm billion dollar betsey because IT costs one point four two billion dollars in damages because no one was insured. A lot of that money was paid out to flooded hooo nes by the government in the form of disaster relief.

And IT convinced congress that if the insurance companies weren't going to provide flood insurance, the government was gonna have to. And thus the national flood insurance program was born.

IT was designed as a voluntary program, communities up in, and when they often they have to adopt a minimum floodplain management regulations in the female APP flood plane and then then exchange, all of their residents become eligible to purchase flood in turns through the program.

The idea was that municipal governments would vote to join the program. An existing residents could buy insurance from the program at subsidize rates. New residents, however, had to pay risk based rates, which a lot more pensive.

Meanwhile, those local governments agreed to a set of development rules. The rules are designed to either dissuade governments from building and flood prone areas, or to push them to build in ways that limited damage from flooding. But we're a lot more expensive to implement.

Other words, the rules took came up both the supply and the demand side of the highest equation and flood zones. The idea was to stop or slow development in these areas so that the government wouldn't have to come and spend billions of dollars in aid every time there was a flood.

But there was a problem with this plan. In fact, there were three big problems. The first, those maps that famous, was to provide identifying flood risk areas.

Yeah, those maps are very expensive, and they take a very long time to make years in some cases. And often by the time that they are finished and distributed, they don't reflect changes that have been made in the interm, in the infrastructure and topography on the ground. What's more, Caroline says they often don't reflect all of the risks associated with the changes in north american climate.

They do not include flood risk from intense precipitation events, and climate change is making intense rainfall more severe and frequent in many parts of the country. And lots of people that are now experiencing that rainfall related flooding aren't aware didn't have flood insurance.

The second problem that the national flood insurance program has had to contend with, low sign up rates.

Nobody likes to buy insurance. Nobody likes to think about bad things happening or purchase something they hope to never use.

Yeah, when the N. F I pid launched back in the late sixties. IT was kind of a flop. For one thing, communities didn't opt in in large numbers. And even when they did, residents of those communities simply didn't buy the insurance. And as we have talked about on the show before, insurance programs can only function if there's a large pool of policyholders whose premiums are used to make payments. Ts, in the event .

of a disaster. IT took until the midnight seventies for the nfip to get any momentum. today. IT covers about five million properties. That may sound good, but it's still not enough to sustain the program.

And then there's the third problem. All of those incentives to dissuade cities and developers from building on flood risky land, well, they didn't work. Oversight of the communities who signed up with sketchy and development went on regardless of the risk. Caroline says this shouldn't really be a surprise.

Unfortunately, we have a lot of missile incentives. Developers don't hold on to the risk long term. They just pass IT off.

So they have every intensive to just build a lot of risky stuff because somebody else is going to pay the cost. Same with local governments, they don't hold the bill later, but they get the property tax revenue when it's safe. So not making risk informed choices.

All of this, the low sign rate, patchy enforcement, the issues with mapping IT might not add up to a problem if there weren't too many flooding events to contend with. And for a while there, in the seventies to the nineties, there warrant.

And then in two thousand and five hurricane train, a hit, then rita, then wilma, the N, F, I, P. Had to handle so many claims that he just playing run out of money if IT was a private insurance company who would have gone bust. Instead, IT tapped the government for a billions of dollars in loans.

Since then, over the last twenty years, there have been so many flooding events that the nfip has gone back to the federal well again and again.

The N F I P has been billions of dollars and death going back to hurricane Katrina in two thousand five.

two thousand seventeen. After Harris e harvey, instead of sending the programme to even deeper, det. Congress for gave sixteen billion of N F, I, P loans, but the programme still loves around twenty billion.

In the years since then, many stakeholders have all made very clear that fee is never going to be able to repay this debt on its own, and the interest costs are adding to the cost of lood insurance for policyholders.

Now it's notice that congress isn't aware of this problem that wasn't attempt in twenty twelve to reform the N. F. I.

P, but the suggested changes involved increases in premiums. S, and no politician wants to support a measure that's gonna raise cost for the constituents. So the reform was reversed.

There are other solutions to reduce flood risk to home owners. For example, female offers support to municipalities to buy out flooded homes so that people can relocate. But in waterbury of vermont, then areas has seen how skilled incentives can derail initiatives like that.

After the floods blast july, see me I came back and and then offered biot for people. But the town is very reluctant to approve any buyout ts because they didn't want to lose the housing stock. And so there's a there's a way where we're sort of trapped.

I'm not that bend minds being trapped in waterbury. He loves the time and he loves his home, which is why, unlike his granddad, he bought flood insurance through .

the p are deductible about five thousand dollars, and we pay about four thousand something a year for the policy.

Oh.

that is not cheap. No, it's not cheap, but then says that is reasonable given the risk.

This episode was produced by Julia ru with engineering by quiz lee, was fetch by seahawks and edited by kitten cannon. The indicators of production of M, P, R.

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