3.    Strengthen mitigation programs to reduce repeat losses. According to GAO, structures with repeat losses represented almost a third of all claims paid between 1978 and March 2004. Roughly 2,400 structures in Alabama and Mississippi that were damaged by Hurricane Katrina had suffered losses before, as had roughly 20,000 structures in Louisiana. If a property is responsible two or more claims of over $1,000 each in 10 years, NFIP can offer to move, raise, flood-proof, or even buy the property to the reduce overall cost to the program. Unfortunately, these actions are often delayed or avoided altogether.

Congress should pressure NFIP to step up mitigation efforts by setting explicit goals for the agency and establishing regular reports by an outside agency on its progress that are examined at regular oversight hearings. In most cases, retrofitting structures to reduce flood damage will save NFIP the cost of expensive repairs and the structure’s owner the disruption caused by flood damage.
 

4.     Assess higher premiums for vacation homes and second homes: Currently,NFIP charges the same rates for vacation homes and owner-occupied structures. However, the number of homes built on coastal barrier islands continues to grow very rapidly, with a significant proportion of these homes being expensive vacation homes that are rented out for most of the year. One way to raise NFIP’s income would be to charge owners of these homes 15 to 20 percent more than owners who occupy their structures.

Conclusion

Especially in coastal areas, artificially low flood insurance premiums are subsidies that encourage people to live where natural disasters are more likely to occur. While people should be allowed to live where they please, they should also bear the risk that their choice may subject them to storms, floods, tornados, and other natural disasters. Hurricane Katrina caused what eventually will be recognized as a massive bailout of NFIP, and current weather and population trends make future bailouts likely. Rather than wait around for the next bailout, Congress should make NFIP actuarially sound. These steps necessary to this end will not be popular with many people who live in a flood plain or on the coast, but they are responsible ways to prevent pouring still more scarce tax dollars into the program.