Common Sense For New Hampshire

From the Wall Street Journal:

Private Insurers Start to Offer Flood Coverage

Companies Remain Wary as Congress Hesitates on Plans to Raise Premiums for Government Program

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Private insurers are dipping a toe into the U.S. market for flood coverage, with a handful of companies now competing with the U.S. government to sell policies to homeowners.

Whether they wade in more completely depends largely on whether Congress goes ahead with plans to raise premiums for the government insurance program.

Lawmakers, concerned about the National Flood Insurance Program’s finances, in 2012 passed bipartisan legislation that aimed to scale back subsidies, pushing up the cost of insurance to potentially millions of homeowners substantially.

But after rates began to rise last year, sparking a public uproar in some communities, both the House and Senate have introduced proposals to delay or eliminate many of the increases. Should Congress opt to continue large numbers of subsidies, insurers say, the private-sector push into the multibillion-dollar business could stall.

Meanwhile, the business has been attracting some marquee names. At least five insurers are selling flood coverage to homeowners, while at least one big reinsurer, Warren Buffett’s Berkshire Hathaway Inc., BRKB +1.84% is backing some policies……………….

……………”The [U.S.] flood-insurance program shouldn’t exist” anymore because “the private sector can provide all the capacity required,” said Edward Noonan, chief executive of reinsurer Validus Group, which sells flood coverage globally. “There’s just nothing unique about flood that requires a government program today.”

But greater involvement by insurers depends partly on the government charging higher rates to millions of properties.

Rate increases were authorized in the 2012 bipartisan legislation. As the uproar spread, the Senate voted in January to delay key increases for four years, and last week House Republican leaders introduced legislation that, among other things, would repeal entirely a section of the law dealing with increases from updated flood maps.

These latest legislative moves reflect a change in direction for many lawmakers. Until rate increases began going into effect last year, they had been primarily concerned about mounting losses in the federal program.

An unlikely coalition of conservatives, environmental groups and the insurance industry has opposed the latest legislative proposals to blunt the premium increases.

The House bill “represents a fundamental betrayal” of free-market principles, said R.J. Lehmann, senior fellow at R Street Institute, a Washington, D.C. think tank. Still, the proposed legislation leaves open a potentially substantial role for private-sector reinsurers, he noted……………..

…………….The federal program dates to 1968, when Congress created an insurance option designed to reduce the cost of taxpayer-funded relief for flood victims. Traditional home insurers had long balked at providing flood coverage because of the potential for catastrophic losses.

Now, companies are better able to assess risks, thanks to improved flood maps, satellite imagery and other tools………….

Now I know in order to be politically popular in this town you need to be in favor of any wealth-transfer scheme that benefits anybody who lives here.  But flood insurance subsidies are particularly harmful.  If flood insurance wasn’t so heavily subsidized a lot of really stupid development and home purchase decisions would not have been made and we could have avoided a lot of grief.

Now I understand that many people made their home purchases based on, among other factors, the availability  of affordable coverage.  Most also probably had no idea that their premiums were only paying half the cost.  So I think that realistic rates should be phased in over a ten to fifteen year period at the end of which maybe the federal government could get out of the business altogether.