When hurricanes or major storms strike the United States, most of the media coverage focuses on how climate change is exacerbating the intensity and frequency of major storms. But even as these catastrophic events occur, climate change is only a partial––if very visible––part of the problem. A larger part of the problem comes in the aftermath of these events, as individuals try to clean up, rebuild and move on.

Many who have lost or damaged property need to lean on the federal government to help get back on their feet. This is why the National Flood Insurance Program (NFIP) was created. Its goal, since its inception in 1968, has been to make flood insurance available to at-risk persons even if conventional insurance is otherwise unavailable.

But over the years, no other government policy has become a better example of a mis-managed monopoly. The program is now perversely increasing risk of property damage and human suffering both for whom is insured, and taxpayers writ large.

As the NFIP faces reauthorization this year, it is in the midst of a crisis.

The NFIP expends approximately $1.5 billion of subsidies annually and as such has been steadily accruing debt. The program was bailed out by taxpayers a few years ago to the tune of $16 billion, however this seemed to only make a temporary dent as it is still over $20 billion in debt today. Those debts—like other deficit-running government programs—represent costs that will eventually be borne by the public. But even ignoring the struggling economics of the program, the current framework may be setting up both NFIP customers and taxpayers for bigger problems.

The issue stems from the NFIP’s incentive structure, and the government’s thus-far inability to update flood mapping and accurately calculate risk. The program subsidizes insurance premiums for customers in the highest hazard flood zones, thus insulating them from the risk of their choices and creating a lopsided incentive for them to put themselves in harm’s way and avoid practices that would mitigate risk. While one would anticipate that these efforts are about assisting low-income households, review from the Government Accountability Office notes that the NFIP’s subsidies traditionally go to high-income Americans, which is not surprising as they are the most likely to own coastal property. This means that the NFIP is not only inducing a cost but may be playing a role in raising the costs of natural disasters.

When hurricanes strike, much of the attention is focused on climate change’s role in exacerbating storm intensity. But even though hurricanes and flooding are expected to have an increasing cost, climate change represents only 45 percent of the problem. The remaining 55 percent of increased costs from hurricanes and flooding is due to rising wealth and property values. Rising wealth is a good thing, but the risk to property needs to be accurately reflected in insurance premiums, otherwise the individual incentives to property owners will be to avoid risk mitigation. The real insight, though, is that there is no amount of climate policy that can make up for good on coastal resilience, and that should include programmatic reform that improves incentives for risk mitigation.

Beyond the NFIP, Americans in general face a high cost from natural disasters, with an estimated $54 billion in annual economic damage and approximately $17 billion of which is borne by federal taxpayers. Efforts at improving the resilience of publicly funded infrastructure may be paying off, as evidenced by a surprisingly low burden during the exceptionally busy 2020 hurricane season. But government reports note that poor project prioritization may be leading to inefficiencies in existing federal resilience spending that is disparate among various government entities of jurisdiction—Army Corps of Engineers, Department of Housing and Urban Development, FEMA, etc.

A holistic approach to coastal resilience, which includes reforms to the NFIP, has an opportunity to reduce the costs of natural disasters, but more importantly can spare Americans from the hardship of future storms. To this effect, the R Street Institute has released a paper offering an overview of existing policies, but also lands on six recommendations to the federal government to improve coastal resilience: end insurance subsidies to customers in high-hazard areas; transfer flood insurance risk to private markets that have better incentives to mitigate disaster impacts; update flood maps; incorporate understanding of urban development in flood risk; identify opportunities for natural systems to provide lower-cost disaster mitigation infrastructure; and designate a single entity to coordinate existing resilience efforts to avoid duplication and maximize benefits.

Like clockwork, every hurricane season experts remind us that the threat Americans face from extreme weather events is increasing, yet the federal government continues to operate as though the risk environment is static. When the NFIP comes up for reauthorization this year, policymakers should consider not just how to improve the program, but how to better utilize the resources America already puts toward its coastal communities to mitigate future harm. If legislators instead opt for kicking the can down the road again, then Americans will continue to be encouraged by bad policy to put themselves and their property at risk, with taxpayers on the hook to bear the costs.

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