Congress Should Reauthorize, Reform National Flood Insurance Program

Congress and consumers face a potential economic nightmare if a major storm occurs in the lapse of a federal flood insurance program.

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David Sampson is the president and CEO of the Property Casualty Insurers Association of America. He served in the George W. Bush Administration as the deputy secretary of the U.S. Department of Commerce and as assistant secretary of Commerce for Economic Development.

June 1 marks the first day of the 2012 Atlantic hurricane season. And if Congress does not act, it could also be the day that millions of homeowners, renters, and businesses learn the hard way their property is not insured against the devastating floods that often follow a hurricane.

But it's not just people who live in states affected by hurricanes who should be nervous. Flooding is one of the most common forms of natural disaster and affects nearly every region of the country—from the aftermath of blizzards in the Northeast, hurricanes along the Gulf Coast, river surges in the Midwest, or tsunamis on the West coast.

[Photo Gallery: Severe Storms Slam the Midwest]

What does this have to do with Congress? On May 31, the National Flood Insurance Program is set to expire. Congress established the program in 1968, as flood damage is not covered under a standard homeowners policy. Today the program provides federal flood protection to more than 5.6 million individuals and businesses across the nation, in more than 20,000 communities.

Over the past several years, Congress has pursued a dangerous and inconsistent band-aid approach of short-term fixes to the flood insurance program. There have been 12 short-term extensions of the program since September 2008, leading to lapses in the flood insurance program coverage when Congress failed to act in time.

Flood insurance cannot be purchased during program lapses, nor can existing policies be renewed. These lapses in coverage have left homes and businesses even more vulnerable to devastating floods, while leaving taxpayers more exposed to costly relief efforts. Congress and consumers face a potential economic nightmare in both public and private markets if a major storm occurs during a lapse.

[Check out the U.S. News housing blog The Home Front.]

The flood program not only needs to be reauthorized, but it is desperately in need of structural reform. The National Flood Insurance Program is deeply in debt and must get back on a more sustainable path. Following Hurricane Katrina in 2005, the program incurred over $18 billion in debt and found itself on the Government Accountability Office's "high-risk list" of federal government programs. To put this in perspective, if a private insurance company held no surplus and carried billions in debt for six years, state regulators would immediately shut it down and the CEO would be fired. And yet, the flood insurance program is both statutorily unable to charge adequate rates and often unwilling to raise prices by even the amount it is allowed, despite its massive accumulated deficit.

[See a collection of political cartoons on the budget and deficit.]

A long-term extension of the flood program with fiscal rate reforms is supported by a broad coalition, including consumers, insurers, environmental groups, taxpayer groups, the real estate industry, the construction industry, and the overwhelming majority of both parties in Congress. And Wednesday, the Property Casualty Insurers Association, the National Association of REALTORS, the Independent Insurance Agents and Brokers of America, and the Nature Conservancy have been invited to testify before the U.S. Senate to demonstrate the urgency of bringing stability to a program relied on by millions of Americans.

In the Bible, Noah built the Ark before it began to rain. This month, Congress has the opportunity to make sure the taxpayers don't get soaked by enacting long-term reauthorization and reform before the first raindrop falls.