Flood Insurance Stymied by Federal Government

 

<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

Contact: <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Christine Hall, 202.331.2258

 

Washington, D.C., August 23, 2007—Floods destroy thousands of homes each year and, America’s primary way of paying for them, The National Flood Insurance Program (NFIP), has enormous problems. The program adds billions to the national debt each year and, quite often, pays to rebuild flood-prone houses and businesses time and again. Indeed, a CEI scholar says, the NFIP may actually reduce America’s resistance to flooding.

 

In the new CEI Issue Analysis, Watery Marauders: How the Federal Government Retarded the Development of Private Flood Insurance, Senior Fellow Eli Lehrer explains why the sorry state of flood insurance in this country stems from “government failure” rather than “market failure.”

 

Based largely on original, archival research Watery Marauders reveals that the government obstructed the development of rational, largely private flood insurance systems.

 

Even before the New deal, Lehrer explains, government programs altered America’s natural landscape and made the flood problem worse. Among other things, Lehrer describes how government:

 

·         Built levees that prevented minor floods (and thus reduced the need to prepare year-to-year) and simultaneously did nothing to protect people from major floods;

·         Discouraged market entry by private players by passing, declining to fund, and then failing to repeal a calamitously impractical flood insurance law

·         supported mapping and zoning efforts that made building in flood-prone areas more likely,

·         Finally creating the flood insurance program we have today;

·         Quickly removed the program’s risk-based rates, replacing them with artificially low rates that encouraged development where it never should have happened in the first place. 

 

“Flood insurance exists as it does because political institutions sought to ‘correct’ a perceived market failure and thereby made the emergence of private insurance unlikely, if not impossible,” Lehrer explains.

 

“The Army Corps of Engineers’ levee system gave Americans living in frequently flooded areas a sense that they had a right to near-total freedom from flooding—that the government could always keep them safe from Mother Nature’s worst,” says Lehrer.

 

Read the Issue Analysis                       Eli Lehrer – bio & publications