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Jindal insurance bill needs additional strengthening

A luxury opinion columnists have but politicians don’t is, not to be flippant, they do not have to adopt ideas contradictory to their basic ideological principles to get elected. We can advance our ideas in the purity of intellectual contemplation, without worrying how well they go down with voters. By contrast, electoral appeal may cause politicians to promote things with more of an eye to getting elected rather than to the principle of the idea.

That may be the situation that Rep. Bobby Jindal finds himself with his proposed Multiple Peril Insurance Act which would expand coverage of the National Flood Insurance Program. The bill would add wind coverage to existing coverage, add payment of living expenses due to displacement, and raise coverage limits.

Unfortunately, the concept of the NFIP has been problematic from the start. Essentially, it encourages building in high-risk areas and discourages the private sector from entering this business. But until the hurricane disasters of 2005, it had not been a problem to the U.S. taxpayer because premiums going into the program had paid for claims.

But afterwards, the fund’s liability exceeded all of its total payouts from the past and the reality is that at existing levels existing premiums paid into the fund probably cannot even cover interest payments on the massive borrowing that had to take place to cover the claims from 2005. This means the American taxpayer will have to subsidize these funds, much as Louisianans are being forced to subsidize payouts made by the state-owned insurer of last resort resulting from the storms.

This bill only could aggravate the situation, unless certain reforms (such as those suggested by the Heritage Foundation) are undertaken as part of it. First, there currently exists a subsidy for market premiums for older structures. That should be eliminated, bringing these payments up to market value.

Second, it should require flood insurance where storm surges are possible and require coverage for the replacement value of the property. This would add premiums into the fund and increase payouts, but there would be an overall cost savings since it is estimated that insurance payments are only one-third of general disaster relief costs (if the government is going to insist on assisting those who chose not to carry flood insurance).

Third, recent legal changes that encouraged mitigation need to be strengthened. They were designed essentially to remove structures that often made claims from being used because these kinds of payouts still were less than continued claims payment on the same structure.

Fourth, a significant number of structures insured under the NFIP actually are vacation homes or second dwellings. The bill should make the program charge higher rates for any dwelling in a residential zone that is not the declared homestead of an individual or family, which again would boost premiums coming into the program.

Since the federal government has no plans to cancel the program, these reforms would make the NFIP a more efficient, solvent program better matched to existing risk and performing its primary purpose of assisting in economic development in more hazardous areas, while shifting more of its burden to ratepayers and away from taxpayers. Jindal, running for governor, with this bill no doubt wishes to assist Louisiana homeowners who are in the program, who do vote, against future catastrophes. But without these reforms to accompany the legislation, by increasing taxpayer risk exposure his may make matters worse for the general public.

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