CHARLIE MITCHELL: Flood insurance a case study in a good idea gone bad

The federal government sues Mississippi fairly often. Less often, Mississippi sues America – but it does happen.

Two years ago, the state Department of Insurance objected in court to congressional action to sustain the National Flood Insurance Program. Why? The law made the insurance cost too much – way too much.

Congress backed off. Last month Commissioner of Insurance Mike Chaney, a Republican, dropped the state’s lawsuit.

There’s no better case study in good legislation gone bad than the NFIP, created in 1968.

The situation was this: Owners of private property in frequently flooded areas could not buy private policies to guard against flood losses. Fire, theft, tornado – yes. Overland flooding – no. Insurance companies would not underwrite the risk, period.

But lots of properties are vulnerable along the Mississippi and other rivers. Storm surges pose, as we all know, a serious risk on the Gulf Coast.

Early on, the NFIP was to (1) provide subsidized coverage and (2) discourage development in known flood areas.

Specifically, private insurance companies would still sell the policies, but at discounted rates backstopped by Uncle Sam. In the event of a claim, the property owner would be paid the cost of repairs with one important catch: A home or other structure would be “totaled” – owners paid the pre-flood value – if the damage was more than 50 percent. Further, cities and counties had to agree not to allow construction in a known flood area or allow rebuilding on a “totaled” site unless the floor level was above the flood level.

For many Mississippi counties, this meant big changes.

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