In testimony delivered last fall before a congressional committee, Robert P. Hartwig, Ph.D., CPCU, senior vice president and chief economist for the Insurance Information Institute, pointed out the problems. One is that premiums for flood insurance are too low to be actuarially justified. Another is that, despite the low premiums, relatively few people buy flood insurance. Hartwig noted that fewer than 10% of property owners in some coastal counties hit by Katrina had flood insurance. He attributed such low participation to the usual suspects: denial, cost (low as it may be), and the likelihood that the government will provide post-disaster assistance to flood victims anyway. He also pointed out that some people may believe they don't need flood insurance because plaintiff lawyers and attorneys general will get them financial assistance–by beating it out of homeowners insurers.

Hartwig also had answers for this mess. First, make rates actuarially sound. The data and technology exists to put such rates in place rapidly, he said. Hartwig also had a plan for increasing participation rates: Make people buy flood insurance. Of course, we already do that to a degree. Everybody with a mortgage who lives in a 100-year flood plain is required to buy coverage. Hartwig would extend mandatory coverage to other areas that could be reached by floods.

The Independent Insurance Agent & Brokers of America, in a flood-reform agenda released last fall, sounded a similar note. Among its many sensible suggestions, it called for mandatory coverage within a 250-year or 500-year flood plain, and, in support of that move, for appropriating additional funds for updating and modernizing flood maps.

In response to the flood-insurance crisis created by Katrina and other hurricanes, congressmen Mike Oxley (R-Ohio) and Barney Frank (D-Mass.) introduced the National Flood Insurance Program Commitment to Policyholders and Reform Act of 2005. The bill initially did call for making coverage mandatory within 500-year flood plains. Then a California congressman protested that the requirement might hurt the housing market, and the provision was dropped. So much for profiles in courage.

Although Congress cut off one logical way to alleviate the flood-insurance mess, perhaps there are others–at least for flooding associated with hurricanes. I'd like to offer the following pipe dream: Let's start by acknowledging that the country has changed tremendously since 1969, when the NFIP was created. An influx of people and developers has transformed coastal areas beyond recognition. Today you could really gin up some flood-insurance premiums–just in coastal 100-year flood plains–if you required everything in them to be absolutely, positively insured.

Next, let's take the really radical step of acknowledging that the only sane way of writing hurricane insurance in coastal areas is to combine it with flood insurance. The ideal way of doing so would be to let private insurance companies sell both products at actuarially supported rates. There is a heck of a lot of high-end property–both commercial and residential–along the coasts, and it can and should pay its own way. I bet there are enough exposure units to spread the risk–if everyone has to buy in. If insurance costs were too high to justify building in particularly high-risk areas, then developers and homeowners would know it doesn't make sense to do so. The NFIP, meanwhile, would revert to what I think is its logical role: insuring pure flood insurance exposures away from the coasts, except perhaps for offering subsidized coverage to low-income property owners living along them.

So much for dreaming. In the real world, if I were an agent in a coastal area at a time of apparently increasing storm activity, I'd make sure I offered flood insurance to all clients with a hurricane exposure and got statements acknowledging as much from those who declined it.

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Correction: In the Review & Outlook issue, an incorrect URL appeared for Automated Installment Systems (AIS) in the Master Products and Services List. The correct URL is www.automatedinstallment.com.