While their magnitude and the backlash may have been a surprise, the cost increases are what was intended. But why should it have been a surprise? Removing subsidies is never popular:
A major flood insurance bill was a rarity when it passed what is widely derided as a do-nothing Congress in 2012, but a year and a half later, there is now an enthusiastic bipartisan effort to gut it. ...
It appears to be another Washington story of unintended consequences, and a warning, environmentalists say, of the rising costs of climate change. Most important, the bill may be a preview of the fights to come over who will pay those costs.
The Biggert-Waters measure sought to reform the nation’s nearly bankrupt flood insurance program, ending federal subsidies for insuring buildings in flood-prone coastal areas. Over the past decade, the cost to taxpayers of insuring those properties has soared, as payouts for damage from Hurricanes Katrina, Irene, Isaac and Sandy sent the program $24 billion into debt.
The aim of the measure was to shift the financial risk of insuring flood-prone properties from taxpayers to the private market. Homeowners, rather than taxpayers, would shoulder the true cost of building in flood zones.
Deficit hawks liked the idea because it would curb a rapidly rising source of government spending. Environmentalists liked the bill because they said it would reflect the true cost of climate change, which scientists say is ushering in an era of rising sea levels and more damaging extreme weather, including more flooding.
But a year after the law passed, coastal homeowners received new flood insurance bills that were two, three, even 10 times higher than before.
The flood insurance problem will never be addressed until the true cost of coastal living is faced by coastal homeowners. One expensive way of jumpstarting the process is to buy out coastal homeowners who can't afford the new insurance premiums at the pre-policy market price. The government could then sell it at a market price that reflects the new insurance premiums. The goverment budget deficit would take a one-time hit but that would be better than taking a long term hit by having taxpayers subsidize coastal living through the National Flood Insurance Program.
So, I see three unattractive options:
- Ignore the problem and let taxpayers continue to subsidize coastal homeowners
- Leave Biggert-Waters in place and make coastal homeowners pay the true cost of coastal living
- Ease Biggert-Waters into place with buyouts of homeowners who cannot afford coastal living
In the long run, options 2 and 3 are strongly preferred in terms of economic efficiency.