Does the National Flood Insurance Program Have Redistributional Effects?

by on September 4, 2017 at 4:29 am in Current Affairs, Data Source, Economics, Law | Permalink

Our findings indicate that premiums as a percentage of coverage purchased are regressive: premium shares are larger than income shares for lower-income zip codes. Payouts, however, also as a percentage of coverage purchased, are progressive, meaning lower-income zip codes receive a larger portion of claims paid. Overall net premiums (premiums – payouts) divided by coverage are also regressive.

That is from a recent paper by Bin, Bishop, and Kousky, via the excellent Kevin Lewis.  Here is Politico on the fight to thwart flood insurance reform.

1 dan1111 September 4, 2017 at 4:57 am

This has to rank almost as high as ethanol subsidies on the list of Very Dumb Things that just won’t go away.

2 Dick the Butcher September 4, 2017 at 8:08 am

Does this program constitute a “perverse, material incentive?”

3 Dick the Butcher September 4, 2017 at 8:09 am

“Government is where bad ideas go to achieve immortality.” Stephen Green @Instapundit

4 mulp September 4, 2017 at 1:00 pm

Yep, much better just to give cash without requiring payment for risk.

Latest estimates are 9% insurance coverage of damaged or destroyed property losses in Texas.

Mortgage insurance losses will be higher with private mortgage insurance losses higher percentages than GSEs. For political reasons, much of the land in Texas is not legally at risk of flooding, even after flooding, so flood insurance is not required to get GSE mortgage insurance.

Note the Obama regulations rescinded would be opposed because they cause blight. For an area with 20-30% of lots covered by flood insurance, buyouts or building much higher at much higher out of pocket costs destroys the neighborhood curb appeal, cuts the tax base, and dooms the neighborhood. Jack boot Federal community destruction.

5 Dick the Butcher September 4, 2017 at 1:23 pm

Better to not build/buy in a 100 year flood zone. I once stopped a buy in one, insurance or no.

Anyhow, there hasn’t been a recent sighting. So, I’m hoping and praying that Big Foot didn’t drown in the flooding.

6 Borjigid September 4, 2017 at 2:08 pm

+1

7 prior_test3 September 4, 2017 at 6:02 am

Has anybody considered aksing the excellent Kevin Lewis to be a formal member of the cast, instead of a recurring guest star on the series?

8 rayward September 4, 2017 at 8:13 am

“Our findings indicate that premiums as a percentage of coverage purchased are regressive. . . .” That’s simple math: the limit on coverage ($250,000) means that higher income households can’t purchase coverage anywhere near the value of their homes. In other words, lower income households and higher income households end up purchasing about the same coverage. If the owner of a home could purchase any level of coverage, the higher income households would purchase a lot more coverage than they are allowed to purchase today, which would make premiums as a percentage of coverage a lot less regressive. Higher income households often don’t bother with flood insurance: what’s the point of $250,000 of coverage if one’s home is valued at $5 million.

9 TMC September 4, 2017 at 1:53 pm

Because a $5mil house would have about $250k spent in the basement, which is typically the only thing damaged.

10 TMC September 4, 2017 at 1:54 pm

Ok, that may apply to northern states more than southern.

11 Roy LC September 4, 2017 at 7:49 pm

You act as if flood insurance inly covers total loss.

Replacing carpet, electrical, and wood damage, etc… is covered by flood insurance. If you get 6 inches of water in your million dollar house, that 250k of coverage is pretty awesome, in fact it may be all you need.

12 Axa September 4, 2017 at 8:30 am

“The powerful home builders’ lobby helped kill a proposal that would have phased out coverage for new construction in high-risk areas. The National Association of Realtors blocked an attempt to rein in discounted insurance rates that homeowners can get when their flood risk increases. And the American Bankers Association has warned of a “regional foreclosure crisis” if Congress axes coverage for homes with excessive claims.”

If this is true, the NFIP is a subsidy for irresponsible home builders. Instead of going after the vendor of defective products, consumers get a band-aid.

Ps. at least the impacted area was not Florida……oh wait, it’s named Irma.

13 Thiago Ribeiro September 4, 2017 at 9:21 am

The whole point is, America’s system has become dysfunctional and dystopic. As famous Red China newspaper Global Times pointed out, “The hope is that America will be able to break out of this dangerous spiral of chaos. With the ideological person behind the White Supremacist movement out of the White House, hopefully America can get back to normal and be a bit more rational. Whether U.S. President Donald Trump’s former chief strategist Steve Bannon’s departure will be enough to keep the U.S. from falling deeper into chaos remains to be seen, but it does prove that the country is trying to correct itself, and this is a positive sign.”
It is not lear anymore Washington can retain China’s confidence, which is essential to the funding of America’s military, social services and the very existence of the nation built by Washington, Jefferson, Franklin, Hamilton and Mason.

14 Tom T. September 4, 2017 at 9:50 am

Your act was more entertaining when you were pretending to be Brazilian. We can get the anti-Trump stuff anywhere.

15 prior_test3 September 4, 2017 at 10:01 am

But what one truly misses around here are these days are the rabidly pro-Trump people. Almost as if Trump is proof that you cannot fool all of the people all of the time.

16 Dick the Butcher September 4, 2017 at 1:32 pm

I’m genuinely pro-Trump. Each day I see how fortunate for America to have Trump as POTUS.

I changed my posting modus because you geniuses do it for yourselves.

17 prior_test3 September 4, 2017 at 2:10 pm

And apparently no longer rabidly pro-Trump, by your own admission.

18 TMC September 4, 2017 at 2:01 pm
19 prior_test3 September 4, 2017 at 2:09 pm

Actually, in his own way, Trump is one of the best things to happen to American democracy in my life time. But then, so was Nixon. It is always good to be reminded that the president is thoroughly replaceable, unlike a monarch who is above the law.

20 Thiago Ribeiro September 4, 2017 at 2:39 pm

Yet, even America’s creditors are worried about America’s descending into chaos.

21 Thiago Ribeiro September 4, 2017 at 12:27 pm

Well, I thought it ill-thought and not generous to rub salt in the wound and remember that president Temer got a uproariously welcome in Beiking and lectured the Red leaders about his famous free market reforms. Meanwhile, Trump risks the bread and butter of the American people…

22 Thiago Ribeiro September 4, 2017 at 12:30 pm

“We can get the anti-Trump stuff anywhere.”
Spe ially in Chinese newspapers worried about their money…

23 Slugger September 4, 2017 at 9:50 am

Lots of people dislike the federal flood insurance program because it is a subsidy rather than an actual insurance measure. However, don’t we subsidize the areas prone to flooding in lots of ways and for lots of good reasons? We pay for dredging, harbor installations, the Coast Guard, etc. There are many benefits to the Midwest from having a great harbor at the mouth of the Mississippi, and there are genuine benefits to the nation as a whole from having petroleum receiving, processing, and shipping in Texas. If getting these benefits requires some subsidies, the cost/benefit certainly should be debated, but I don’t see anything useful in a categorical denunciation.

24 Borjigid September 4, 2017 at 2:10 pm

If we want a harbor at the mouth of the Mississippi, lets subsidize a harbor at the mouth of the Mississippi.

This is subsidizing homeowners in all flood plains, which I guess indirectly reduces the cost of a harbor at the mouth of the Mississippi, but in about the least efficient way possible.

25 Roy LC September 4, 2017 at 7:52 pm

Their are great benefits to the Midwest in having a flood insurance system. The midwest is completed covered with rivers and it is not like the Mississippi-Missouri-Ohio and all there tributaries don’t regularly flood.

26 Bill September 4, 2017 at 11:50 am

As in Medicaid “reform”

Why don’t we devolve the National Flood Insurance Program

To the States.

Too bad, Texas, Florida, the Outer Banks, developers who build on marshland or coastal regions…you now have Freedom to Choose, to run and finance your own programs with a federal cap.

And, Pay for your own predictable cleanup. from you own development decisions.

27 Moo cow September 4, 2017 at 11:54 am

I was reading a news story the other day. A Sandy survivor and business owner was interviewed. She said something like “FEMA eventually came through and covered us almost 100%. I hope they do the same for Houston.”

With a policy like this, what does it matter. The chumps are the ones who insure against loss. Like 9/11. The government program that paid survivors of the dead reduced the amount paid by any life insurance the deceased carried. So it really was of no benefit to carry the insurance when the government made you whole in the end.

So as for Hurricane areas, why not rebuild right on the water? If it hits again you will be paid regardless whether you had insurance or not.

28 mulp September 4, 2017 at 1:13 pm

9/11victim compensation did not reduce private insurance payouts.

But it was written by conservatives, unlike the liberal victim compensation for the OK Federal building terrorist attack 8 years earlier that was much lower.

But maybe being killed by Christians isn’t as harmful as being killed by Muslims. Or maybe it’s, being killed by US citizens is not as harmful as being killed by Saudis.

29 Moo cow September 4, 2017 at 2:35 pm

Right. It did not reduce private payouts. However, when compensation was calculated, the amount paid by the compensation fund was reduced by the amount of the private payout.

30 Roy LC September 4, 2017 at 8:03 pm

The concrete benefit of flood insurance is that it takes a lot longer to get the money from FEMA. Also if you have flood plus homeowners, all the fighting over what water blew in vs what flooded up is mostly taken care of. Not getting flood insurance if you are in anyway in a flood plain, even if not formally, is dumb.

31 Jack September 10, 2017 at 4:34 pm

You mean like once we sing ρraisе songhs in Church?? Larry askеd
and daddy nodded. ?Νicely I can make up a worship song.?
So Larry jumped to his toes аnd started to make up a track to а reаlly unhealthy tune.
?Jesus is so cool. Its fun Ьeing with God. Hes the
funnest God anyone may have.? Larry sang very Ƅadlʏ
so Leee had put his palms over his ears.

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