Federal Flood Insurance

Re James Bovard’s attack on the National Flood Insurance Program, Commentary, June 18:

Some policyholders (whose rates are determined by their actual flood risk) would argue that their premiums are not cheap, despite the fact that the rates do not include a profit margin. Bovard is wrong to imply that it costs only $300 per year for $250,000 of coverage in a high-risk area. That figure is the average premium for all policies nationwide, including low- and moderate-risk areas, and it is for approximately $100,000 of coverage; $250,000 is the maximum coverage available for a single-family home, not including contents.

Secondly, the NFIP serves to discourage risky development, if anything. In a flood hazard area, flood insurance is a condition for any federally insured mortgage or construction loan. The community must comply with NFIP requirements when issuing building permits.

Bovard contends that the NFIP “ran out of money last year” because it borrowed $600 million from the U.S. Treasury. He is confused. The borrowing he refers to occurred in 1995 following a rapid succession of major flood disasters. When Congress established the NFIP in 1968, it set up a borrowing mechanism to correct temporary cash-flow problems resulting from the ebb and flow of claims and premium income due to the unpredictability of flood disasters. As NFIP claims subside, money borrowed is repaid (with interest) from premium income. The NFIP is not broke. It takes in nearly $2.7 million per day in premiums.

Finally, Bovard is wrong when he claims that flood insurance is “subsidized” and charges that “FEMA is pretending that merely shifting the cost of flood damage from a homeowner to taxpayers in general is almost as good as preventing a flood.” The NFIP is a self-supporting program; claims and operating expenses are paid from policyholder premiums, not taxpayer dollars.

JAMES LEE WITT

Director, FEMA

Washington