WASHINGTON–The National Flood Insurance Program should effectively be privatized, a think-tank analyst argues in a new study paper.
The analyst, Eli Lehrer, a senior fellow at the Competitive Enterprise Institute and an expert on the program, specifically said the NFIP “is broken and needs serious change.”
And, he said, in the long run, “it needs to go.”
He wrote that “a large portion” of the NFIP’s policies “have some value on the private market” and should be divided up into portfolios and sold to buyers through an auction.
Mr. Lehrer said in his paper that such sales would reduce the government’s role in insuring against flood losses. He wrote that at the same time such action would “deprive the government of a revenue source to subsidize many of its worst risks.”
Mr. Lehrer’s comments were made as Congress prepares to renew the program, whose authorization runs out Sept. 30.
Both the House and the Senate have passed bills reauthorizing and reforming the program, and the House has appointed conferees who would represent it at a conference normally held to reconcile different versions of the same legislation.
But, with time running out in this session of Congress, congressional staff and industry lobbyists see a more pragmatic approach to resolving differences between the two bills.
They see the Senate bill as the primary vehicle for drafting a final version, with private talks between House and Senate staff getting underway promptly after Congress returns Sept. 8 from its summer and presidential convention recess.
Mr. Lehrer said in his study that the bills working their way through the legislative process will “resolve some of the program’s most obvious absurdities and reduce its liabilities slightly.”
But, he said, the reforms and language in the Senate bill that would repay the program’s more than $16 billion debt from Hurricane Katrina “will not solve its fundamental, underlying problems.”
Mr. Lehrer found one slightly positive aspect of the NFIP. He wrote that it has been “moderately successful in improving the quality of land use planning in the United States–at least relative to what came before.”
But his report argues that the program has enormous weaknesses, including the fact “it has cost taxpayers billions of dollars despite promises that it would sustain itself.”
While it has encouraged some development in environmentally sensitive flood plain areas that would not have occurred absent the program, Mr. Lehrer said the NFIP “has impeded the development of superior, private sector models to deal with flood risk.”
Two ideas Mr. Lehrer is pushing for are land buyouts and partial privatization of flood mapping.
He said that in certain cases, government, private industry, or a combination of the two might buy land currently occupied by NFIP-insured properties and convert it to more flood-resistant uses–for example, golf courses, parks and other public areas.
He cautioned, “Although attractive for some parcels of land, and an important component of any ‘exit strategy’ for NFIP, land buyouts cannot, alone, solve the program’s problems.”
He is also critical of NFIP’s “one size fits all” mapping system. He said that approach guarantees that maps will have flaws.
Instead, Mr. Lehrer said, the government should move toward a private mapping system by allowing insurers to base flood insurance rates on any approved map they can chart. “Insurers could devise different sets of maps and set rates based on them,” he said.