WASHINGTON (Jan. 4, 2013) — The R Street Institute today welcomed the commitment by incoming House Financial Services Committee Chairman Jeb Hensarling, R-Texas, to craft legislation during the 113th Congress to transition the provision of flood insurance to the private market.

In a statement on the House floor shortly after the chamber voted to increase the National Flood Insurance Program’s borrowing authority by $9.7 billion, Hensarling vowed that the “committee will take up legislation to transition to a private, innovative, competitive, sustainable flood insurance market.”

Assuming the borrowing authority expansion is ultimately passed by the Senate and signed by President Barack Obama, the program could ultimately owe as much as $30 billion to the U.S. Treasury, an amount it is unlikely ever to be able to repay out of normal operations. In a June 2011 report  on the program’s debt, the non-partisan Government Accountability Office projected that the high cost of servicing even the $17.8 billion the NFIP owed at that time meant that the debt “may never be repaid, could in fact increase, and will continue to affect the program’s solvency and be a burden to taxpayers.”

R Street Senior Fellow R.J. Lehmann noted that while there will be challenges in moving to a fully private market for flood insurance, including development of appropriate underwriting and catastrophe modeling tools, flood risks already are privately insured in many other developed markets, including Australia and the United Kingdom.

“For decades, the NFIP has been offering below-market rates that have subsidized construction in risky and environmentally sensitive regions across the country. Unwinding those distorted market signals in a way that causes minimal pain to existing home and business owners will be a challenging process, but one that is well worth exploring for the sake of both taxpayers and the environment,” Lehmann said.

“The catastrophes we saw in 2012 should be a wake-up call that we simply can no longer afford to encourage people to live in harm’s way. We welcome Chairman Hensarling’s commitment to future flood insurance reform and would offer our own expertise for members of Congress seeking ways to make privatization a reality,” he added.

R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. Its website is www.redesign.rstreet.org.

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