The Weeds: the problem with the national flood insurance program

In the chaotic aftermath of Hurricane Harvey, one thing has already become clear: The US federal flood insurance program is massively underfunded.

On the August 23 episode of The Weeds, Matthew Yglesias and Sarah Kliff discuss flood insurance policy in light of Hurricane Harvey, the future of the single-payer health care debate, and a white paper on delaying kids’ entry to kindergarten.

The national flood insurance program was created in the 1960s to deter people from building in flood prone areas. But, says Sarah, it has actually done the opposite. She compares the program to health insurance:

“When you have a population full of people that have hemophilia you would charge incredibly high premiums because you know those drugs are extremely expensive. But you haven’t seen the same thing develop in these high-risk areas that are flooding very repeatedly.”

Matt offers an explanation as to why representatives from flood-prone areas support the federal flood insurance program — the cheap land has promoted economic growth. “It was the politicians in these areas that did not really want to accept the market verdict, that it may seem like the city of Houston is surrounded by cheap land, but that land has enormous hidden flooding risk.”

Turning to the health care debate, Matt criticizes current single-payer plans, arguing that they need more input from the Democratic wonk class. Sarah and Matt also discuss a new white paper on the effects of redshirting in kindergarten (delaying a kid’s start by a year), which suggest that being old for one’s grade may result in higher test scores, increased college attendance, and reduced likelihood of incarceration for juvenile crime.

Here’s Sarah discussing some of the policy failures of the federal flood insurance program:

SARAH: The Pew Foundation did a study on the flood program and they looked at these houses that have had multiple floods, and these are about 1 percent of houses that have flood insurance, but they make up 10 percent of claims.

One example they had, which was just astounding, was there’s this one $69,000 home in Mississippi that has flooded 34 times in 32 years and has received $663,000 in payments. If you have that kind of backstop, why not build a $69,000 house in a flood zone?

The thing you need in any sort of insurance program is a good estimation of risk. You need to be spreading out the risk among a wider group of people. So if there’s a flood in Houston one year, the places where it didn’t flood can cover it and vice versa. You could have a reasonable flood insurance program that got those risks right. One of the things they do is look at areas that are in a 100-year flood zone and setting the risk appropriate to the amount of floods they would expect.

One of the things that we have been seeing is that with more urban development, which leaves less space for water to go, and when water falls on concrete and streets it has [fewer] places to go rather than it falling on a wetland. So that is certainly something that is going on with Houston’s big development and urban sprawl, and with climate change storms are getting stronger. The risk factors are changing significantly, but the federal formulas to determine risks are not keeping up.

It seems like the thing to do rather than have a federal policy which encourages building in flood zones and a local policy that pushes back against that federal policy is calibrating the policy to do the thing you want it to do.

We changed our health insurance system because we wanted it to be a health insurance system that was willing to cover risky people. And insurance companies, very smartly, they raised their premiums as a result. They were saying, well we are going to have to take these hemophiliacs and cancer patients and we are going to have to raise our prices. And I don’t think a flood insurance market is super different. We could decide this is a national priority and decide that Matt and I here in DC have to pay some sort of flood insurance premium even though we are super low risk just because there are more floods happening and you need more low risk people in the pool.