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Will Irene finally fix NFIP?

By Jay MacDonald · Bankrate.com
Friday, September 2, 2011
Posted: 9 am ET

As predicted, Hurricane Irene developed into the "perfect storm," an enormous, lumbering continent-sized sponge from hell that seemed to soak up half the Atlantic Ocean and redistribute it with disastrous effect from the Carolinas to the Canadian border.

Experts predict that Irene could rank as one of the 10 costliest natural disasters in U.S. history, with estimated damages as high as $7 billion to $10 billion, and a death toll at 46 so far.

To make this perfect storm even worse, it arrived on the heels of violent spring weather that killed 337 and caused an estimated $10 billion in damages throughout the Midwest and Southeast. Fortunately, Irene was no Katrina, the 2005 Category 5 monster that caused upward of $81 billion in damages, killed 1,836 and popped homeowners insurance rates nationally in 2005.

Although Irene did not produce those Hollywood movie moments of salmon spawning up Manhattan skyscrapers, its impact on future homeowners insurance rates will likely be felt nationwide. With more than $100 billion in worldwide losses in the past 18 months, it's a safe bet that the $500 billion U.S. property insurance industry is already calculating how to distribute the premium pain.

Irene should also force Congress to cease its endless head-scratching over the National Flood Insurance Program, or NFIP, and redesign a more sustainable version 2.0.

The program is a mess. It pays out far too much in commission to the 90 or so homeowners insurance companies that write NFIP policies through its write-your-own, or WYO, program and it's not allowed to do things that most insurance companies do to mitigate risk, such as build a surplus fund or purchase reinsurance to cover catastrophic losses.

NFIP has been broken for years, but it took the blows of Hurricanes Ivan in 2004 and Rita and Katrina in 2005 to completely exhaust the meager $2.3 billion that NFIP had collected from flood insurance premiums. Today, it's in the hole at least $18 billion. I shudder to think what the claims from the first nine months of 2011 will do to that figure and the bailout toll it will take on U.S. taxpayers.

If there's a silver lining to Irene's dark cloud, it's that so much of its widespread damage was flood-related.  That should turn the heat up on Congress to get down to business and design a sustainable program, rather than one that essentially reverts to a taxpayer bailout every time a monster storm approaches our shores.

Because as Irene once again illustrates, we still have no workable solution to flood insurance in this country.

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