It is almost 50 years since Congress created the federal flood insurance program. It is now time to update the program, and to plan for its future. The government cannot permanently run an insurance program so people can live in coastal areas and inland rivers with a very high risk of flooding. The legislation authorizing the federal flood insurance program expires at the end of September. Congress must do something before then, or the program that protects 5.5 million homes from surging oceans and rising water will cease to exist. For all the partisanship and bickering, Congress is very unlikely to let that happen.

Flooding was a covered risk in homeowners insurance policies until the 1950s, when insurance companies decided they were losing money on it. The National Flood Insurance Program was created in 1968 and it put the federal government in the business of providing insurance to people who couldn’t afford it or could not buy it on the private market. The premise was that the government would save money on disaster relief and use that money to underwrite the flood insurance program. If there was a bad year with a lot of claims, the flood insurance program could borrow money from the federal treasury and pay it back, with interest. Hurricanes Katrina in 2005 and Sandy in 2012 sank that idea. The program is now $25 billion in the red.

To make sure enough people bought into the program, Congress mandated that anyone with property in a high-risk flood zone had to have flood insurance to get a federally guaranteed mortgage. Private mortgage lenders quickly adopted the same requirement. The federal flood insurance program is under the direction of FEMA, the Federal Emergency Management Agency, which pays private insurance companies to administer the program. About 30 percent of what people pay for flood insurance goes to those companies. Of the 5.5 million covered properties, 1.7 million are in Florida, 608,000 in Texas and 472,000 in Louisiana. As of last September, there were 64,963 homes and businesses in Massachusetts in the federal program.

There are some myths about federal flood insurance.

Yes, there are mansions on the ocean insured under the flood insurance program, but a majority of the covered properties are owned by people who would not be described as wealthy. In Massachusetts, there are summer cottages and cottages made into winterized homes that are covered by federal flood insurance. They are far from being mansions. Inland, the bottom land along rivers was not prime real estate – too much flooding. Many average people bought and live there.

FEMA publishes maps for each community in the flood insurance program. Those maps identify areas according to the risk of flooding, and that is factored into flood insurance rates. The highest risk zone – identified as special flood hazard areas – pay the most for insurance. There are 11,000 homes nationwide in those areas. That’s 0.2 percent of the 5.5 million homes covered by federal flood insurance, but that 0.2 percent accounts for 30 percent of flood-damage claims.

There have been limited attempts to use government money to buy people out of shoreside houses subject to frequent flooding. They have met with limited success. The goal of federal officials now is to reduce the damage to properties in high risk areas. FEMA calls it mitigation, but it’s visible to most people as raising house on stilts. The government will pay up to $40,000 toward the cost of raising houses above the highest high-water mark projected in the next 100 years.

That’s a good idea, but how long are we going to do that? It is difficult to propose this, but eventually we are going to have to abandon some of these properties if we don’t want to forever provide government-sponsored insurance for people who live in high-risk areas. Whether it is the result of human activity or part of a natural cycle, there is significant evidence that the earth is getting warmer and sea levels are going to rise for decades to come. At-risk areas are going to expand, and maintaining the present program is going to become unsustainable.

Property rights are sacrosanct in America; the government can’t just take land and houses without paying. Ultimately, we are going to have to buy out some people covered by federal flood insurance. Our suggestion: do what was done when the Cape Cod National Seashore was established in 1961. The government paid fair market value for recently built homes and leased the properties back to the homeowners. Those homeowners had a choice of a 25-year lease or a lifetime lease, but they could not sell the property or leave homes to their children. The 11,000 homes that produce 30 percent of the damage claims would be top candidates for such buyouts with leasebacks running for 25 or 50 years, or whatever Congress decides. It will be expensive, yes, but better than paying to put houses on 40-foot stilts.

Something has to be done by Congress by Sept. 30 to keep the flood insurance program alive. There are bills in both the House and Senate to continue the program. There may not be time to debate and decide the long-term direction of the program, but one change is imperative now. People who have federal flood insurance do not have to say anything about that when they want to sell their homes. It should be required that people disclose that fact to potential buyers and disclose any claims filed under the flood insurance program. In reality, Congress will probably extend the program, perhaps with some changes. So, yes, keep the program going, but start thinking about if and how it should continue in the future.
