Unless my memory is more faulty than usual, I don’t think I’ve written a single favorable article about any of Joe Biden’s policies. Which isn’t a surprise considering his knee-jerk embrace of higher taxes and bigger government.
But it’s now time to praise the President.
Why?
Because his administration is taking some long-overdue steps to reduce the damaging impact of federal flood insurance. Darryl Fears and Lori Rozsa explain what’s happening in an article for the Washington Post.
…8 million Americans…moved to counties along the U.S. coast between 2000 and 2017, lured by the sun, the sea and heavily subsidized government flood insurance that made the cost of protecting their homes much less expensive, despite the risk of living in a flood zone near a vast body of water. …the Federal Emergency Management Agency will incorporate climate risk into the cost of flood insurance for the first time, dramatically increasing the price for some new home buyers. Next April, most current policyholders will see their premiums go up and continue to rise by 18 percent per year for the next 20 years. …wealthy customers with high-value homes will see their costs skyrocket by as much as $14,400 for one year. About 3,200 property owners — mostly in Florida, Texas, New Jersey and New York — fall in that category. …Homeowners in inland states such as Iowa, Missouri and Nebraska, where creeks, streams and rivers overflow during heavy rains, will also see price increases in their government-backed flood insurance. …“It is now going to say if you’re in a risky place, you’re going to get charged more for it, and other people aren’t footing the bill,” VinZant said. …As of last year, the National Flood Insurance Program (NFIP) run by FEMA was $20 billion in debt from massive payouts to customers.
And here’s some of what the Wall Street Journal reported, in an article by Arian Campo-Flores.
Chris Dailey and his wife are building a new home in coastal St. Petersburg, Fla., that will sit 7 feet above the flood level expected during a major storm. So he was stunned to learn that under the federal flood insurance program’s revamped pricing, his annual premium is slated to soar to $4,986 from $441. …he plans to go through with the project, which is about a block and a half from a canal that leads to Tampa Bay, but worries about the ability to sell it in the future. The National Flood Insurance Program—the main provider of flood coverage in the U.S., with more than five million policies—is rolling out an overhauled pricing method starting Friday in an effort to reflect more accurately the flood risk that individual properties face. …Under the new system, dubbed “Risk Rating 2.0,” some policyholders in especially vulnerable areas will face big premium increases while others in less-exposed spots will see smaller increases or even decreases. …Developers may rethink where they build, and coastal real-estate markets could take a hit. “There is no greater risk-communication tool than a pricing signal,” said Roy Wright, president of the Insurance Institute for Business and Home Safety… Some members of Congress, mainly from coastal states, are urging a delay in implementing the new rating system. Senators including Chuck Schumer (D., N.Y.) and John Kennedy (R., La.) wrote a letter last week to the FEMA administrator expressing concern about sharp premium increases.
The most important sentence in the above excerpt was Roy Wright’s observation about the role of prices.
Subsidies distort prices, causing inefficient and foolish choices – such as building homes that are prone to flood damage.
In a free market, by contrast, prices force people to internalize costs and benefits.
Indeed, in an article for Reason, Ronald Bailey points out that private insurers use prices to – gasp – reflect actual risk.
“Insurers cherry-pick homes, leave flooded ones for the Feds,” runs a very odd headline over at E&E News. The article goes on to explain, “Taxpayers could be forced to spend billions of dollars to bail out the federal government’s flood program as private-sector insurers begin covering homes with little risk of flooding while clustering peril-prone properties in the indebted public program.” Well, yes. …The E&E News article strangely claims that “an increased number of people with flood coverage could help reduce flood damage by making homeowners more aware of their risk.” Of course that’s right, but not being able to purchase any flood insurance at all would be a much more effective and compelling way to make homeowners aware of their risks. …Instead of decrying private insurers for sensibly refusing to cover houses located in high-risk flood zones, the E&E News article should instead have been arguing for ending the government’s National Flood Insurance Program altogether.
Let’s close by looking at how Canada handles this issue.
In a 2019 article for the New York Times, Christopher Flavelle explains that Canada recognized years ago that it doesn’t make sense to subsidize homeowners who make risky decisions.
Unlike the United States, which will repeatedly help pay for people to rebuild in place, Canada has responded to the escalating costs…by limiting aid after disasters, and even telling people to leave their homes. …In 2015, Canada made it harder for lower levels of government to get federal money after disasters. The next year, British Columbia said flood victims who had chosen not to buy private flood insurance would be ineligible for government aid. This year the federal government went further still, warning that homeowners nationwide would eventually be on their own. If people deliberately rebuild in danger zones, at some point “they are going to have to assume their own responsibility for the cost burden,” Public Security Minister Ralph Goodale told reporters in April. “You can’t repeatedly go back to the taxpayer and say, ‘Oh, it happened again.’” …Quebec also limited disaster aid, and not just inside the special zone. After this spring’s flooding, the province said it would set an upper threshold for assistance at $100,000 over the lifetime of the house. After that, homeowners face a choice: They can sell to the government, which will pay no more than $250,000, regardless of market value. Or they can get money to rebuild one last time — but in doing so, they forfeit any future financial assistance.
Two cheers for the Canadians. They’ve been more rational than policy makers in the United States (the ones at FEMA, at least in the past, have been especially incompetent).
But not three cheers. In a column for the Wall Street Journal, Professor Walter Block explains how our neighbors to the north are still imperfect.
The best policy is…laissez-faire capitalism. Treat people as adults—allow them to take whatever flooding risks they choose, but on their own nickel. They should be free to build wherever they want, and to indemnify themselves against risk by buying insurance on the open market. But they should not receive a dime of taxpayers’ money for rebuilding.
Amen. Get the government out of the insurance business.
Capitalism is almost always the right answer.
P.S. If you don’t believe in miracles, you probably will after learning that even Bernie Sanders is semi-sensible on this issue.
