House Bill to Add Wind Coverage to National Flood Insurance Program Would Cost Billions & Hurt the Environment

(Washington, DC) – With the House expected to vote this week on a bill (HR 1264) to expand the National Flood Insurance Program (NFIP) to include coverage for windstorms, SmarterSafer.org warned that the legislation could cost taxpayers billions and negatively impact the environment.  The group urged lawmakers to oppose the legislation.

Both Secretary of Homeland Security Janet Napolitano and FEMA Administrator Craig Fugate have come out against expanding NFIP to include wind.  In addition to costing taxpayers an enormous amount of money, expanding NFIP to include wind would damage the environment by subsidizing development in environmentally sensitive areas.

In a letter being sent today to Members of Congress, SmarterSafer.org wrote that “Rather than further burdening the insolvent, vulnerable NFIP with a mammoth new undertaking, Congress should be looking to enact meaningful, positive reforms…” Possible reforms include phasing out subsidized flood insurance rates for vacation homes, second homes and non-residential properties; incentivizing better land use planning, hazard mitigation and mapping.

The letter notes that the private market currently provides wind insurance quite effectively and observes that when state governments have tried to step in to, local taxpayers have been hit with multi-billion dollar liabilities. Government-run insurance pools cannot both reduce costs for consumers and break even. Insurance works best when insurers pool similar risks in different areas. Through private markets, the risk of windstorms in the United States is already pooled with the risk of floods in the United Kingdom, industrial accidents in Japan, and cyclones in Australia.  Since these events will always never happen at the same time, reserves can accumulate from one type of coverage even if substantial claims are paid out for another.

“By limiting coverage to the United States alone, a federal wind insurance mechanism would not benefit from this risk diversification. As a result, it will have to charge more than the private sector does if it hoped to break even. In order to sell coverage, it would have to under-price the private sector and thereby saddle taxpayers with enormous liabilities. The NFIP proves our case–although current laws mandate that it break even on most policies it sells, the program currently owes over $19 billion to the Treasury and has no way to pay it back. Wind coverage would simply add to this pile of debt that taxpayers ultimately must pay,” SmarterSafer.org wrote.

In addition, the group said that adding windstorm coverage to NFIP would damage the environment by encouraging construction in dangerous places. “Quite simply, the government should not subsidize construction in these areas. Insofar as a flood insurance program that included wind coverage reduces prices, it will encourage building along sensitive coasts, on wetlands and in hurricane prone regions.  This will damage wildlife habitat, limit the natural buffer against storm surge that wetlands provide, and destroy areas of great natural beauty,” the group wrote.

Read a copy of the full letter.