FEMA: Drowning in Debt and Cluelessness

In the wake of vicious storms, the biggest problem in the Northeast and Midwest is flooding. But elsewhere, the problem is often flood insurance.
Last evening's NBC Nightly News segment entitled, "The Fleecing of America" called into question the validity of the Federal Emergency Management Agency's (FEMA) flood insurance program. Residents of a semi-arid area of Los Angeles, who rarely see a puddle, were forced to pay an extra $200 a month for flood insurance they didn't need because FEMA's maps placed them in a flood zone. The report cited a FEMA engineer who admitted that its flood maps are faulty, not just in California but in 16 other states as well.

Insurance is based on the premise that most people won't file claims, or at least not large ones; their premiums pay for those who do. But this hasn't worked for FEMA, particularly after Hurricane Katrina in 2005; the flood insurance program is about $19 billion in debt.

The NBC report suggested that FEMA is trying to deal with the debt in part by forcing policyholders to pay for insurance they don't need. There is anecdotal evidence that this might be the case. "My flood insurance has risen to $1,780 a year," a Chattanooga resident emailed BNET Finance, "far more than my $550 homeowner's policy. And my 1948 house has never flooded. FEMA draws the maps, sets the rates, and collects any price it wants."

And then there are questions about fraud. As BNET Finance previously noted, the Alabama Press-Register's investigation of FEMA found that private insurers, who send out adjustors to assess claims before FEMA pays, received $327 million in FEMA overpayments between 2005 and 2007. Nearly a quarter of all premium payments that FEMA received in fiscal 2008 went to these private insurance adjustors, the paper said.

Of all the government agencies out there allegedly trying to serve the public, FEMA stands out as one of the worst. Flooded by complaints, many of them justified even by its own engineers, the ailing insurance program has too much power to do harm, and too little to do good. Perhaps, instead of roping in desert dwellers, it should focus on flood-prone areas and post signs saying "Don't build here. You will be flooded." Or, if you want our insurance, put your house on stilts.