A new study by the Government Accountability Office on strategies to increase private insurance company participation in the flood insurance market doesn't make any new recommendations, but its reiteration of previous recommendations are well worth noting again.
After seeking comment from stakeholders about conditions that must be met to make the sale of flood insurance attractive to the private market, the GAO repeated three recommendations it made in 2011: that “Congress consider eliminating subsidized rates, charge full-risk rates to all policyholders, and appropriate funds for premium assistance to eligible policyholders to address affordability issues.”
Sound recommendations all, and ones that Congress should take seriously before allowing politics to trump economics by rolling back reforms contained in the Biggert-Waters Flood Insurance Reform Act of 2012.
Among other things, the act requires that the National Flood Insurance Program charge risk-based rates for flood coverage. The requirement was supported by insurance, environmental and free-market groups alike — each for their own reasons, including discouraging development in environmentally sensitive areas and creating conditions that would encourage private sector involvement in the program.
It's also called sound underwriting practice. But the Senate wants the rate reforms, which already have been delayed for a year, delayed for four years. That's a move the White House opposes, and for which the House leadership has shown no great appetite.
There's no good reason for further delay. The NFIP is already about $24 billion in debt, and blocking implementation of more realistic rates can only make that situation worse. That's not fair to the taxpayers, who end up footing the bill to pay claims. Delay also cannot help but discourage greater private participation in the market. Private reinsurers already have made clear they would like to play a role in the flood market under the right circumstances, but a market with politically based rates rather than risk-based rates presents far from ideal circumstances.
The GAO's recommendations were sound in 2011, and they're just as sound now. If the NFIP is to be put on a sound financial footing and the taxpayers spared further expense, those recommendations should be followed without delay.