Aren’t new problems always old problems?

June 12th, 2007

Posted by: admin

Congress is back at trying to reform the problematic National Flood Insurance Program. What’s curious is the claim that NFIP’s problems are recent and related to the 2005 hurricane season. This CQ article says:

The program, which provides virtually all water-damage insurance in the country, had to borrow that amount to pay out the unprecedented number of claims generated by Hurricane Katrina and the other 2005 storms that ravaged the Gulf of Mexico coast.

Lawmakers and experts say the 2005 storms revealed weaknesses in the program that must be addressed to put it back on sound financial footing.

The number of claims may have been unprecedented but the borrowing from the federal treasury to back up the insurance pool certainly was not unprecedented. And it is absurd to suggest that it took the 2005 storm year to “reveal weaknesses in the program.” The literature is deep on the NFIP’s problems and one of the biggest is that rate-setting isn’t protected from political tinkering, so NFIP can’t charge actuarially-sound premiums. So it’s nice to see that Congress is trying to address NFIP’s problems, but the question is will Congress protect NFIP from Congress?

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