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Federal Flood Insurance Exists Because Private Insurers Wanted Out

A devastating 1965 hurricane led private insurers to lobby Congress to get into flood insurance. But that had a lot of unintended consequences.
Posted at 9:37 AM, Mar 20, 2021

Hurricane Betsy made landfall along the Gulf of Mexico in 1965 as a Category 4 storm. More than 80 people died, power and telecommunications were knocked out region-wide and levees along Lake Ponchartrain breached to flood New Orleans.

The impact of Betsy went well beyond lives and property lost, though. As the first U.S. hurricane to cause more than $1 billion in damage, it would reshape flood policy for generations.

Private insurers had largely not offered flood protection for decades following previous devastating floods in 1927, and lawmakers had been considering how to offer affordable flood insurance for years. Private insurers also lobbied Congress for three years to establish federal flood insurance, and in 1968, lawmakers agreed.

But affordable federal flood insurance paired with poor flood risk predictions led to a lot of unintended consequences: increased property values, widespread development in the floodplain and damage claims from more devastating floods (i.e. Hurricane Katrina in 2005 and Hurricane Sandy in 2012) far exceeding revenue from premiums.

There was a reason private insurers wanted out in the late 1920s. Today, the National Flood Insurance Program has more than 5 million policies in force and owes $20.5 billion in debt.

Dr. J. David Rogers with the Missouri University of Science and Technology has studied major floods on every continent except Antarctica. In this video, he explains why it's so difficult for an underwater insurance program to turn things around.