This summer, as part of the Federal Transportation Act, Congress made legislative changes to the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program because it had borrowed $17 billion from the U.S. Treasury to pay off claims for flood damage from the 2005 Hurricane Katrina, and it was deeply insolvent. The editorial board of the Washington Post wrote:
In July, Congress reauthorized the program for five years and included reforms such as the gradual set-aside of a reserve fund, the phase-out of subsidized insurance for second homes and repeatedly flooded properties, a phased-in premium increase and $400 million in annual budget authority for flood-map modernization.
The program was also authorized for the first time to buy reinsurance from private companies. This is progress; whether the NFIP is sustainable post-Sandy is another question.
There are no estimates of insured flood losses from Sandy, but a wide geographic swath was impacted. Some have suggested that the damage from Sandy could consume all the current borrowing capacity that FEMA has from the U.S. Treasury. This could expose the agency to more Congressional scrutiny at a time when legislators are looking for government functions to move to the private sector. The requirement that FEMA buy reinsurance for it’s $1.25 trillion of insured coverage is a small start, but maybe there are ways that flood insurance could be pushed back to the private insurers.
There is a tiny market for private flood insurance, but the bulk is provided through the FEMA program: