Started in 1978

In 1978 during a congressional recess, the secretary of the U.S. Department of Housing and Urban Development nationalized the flood insurance program by forcing private insurers out.

By 1983, so little flood insurance had been written by the federal program that a no-risk deal had to be offered to entice private insurers to market federally backed flood insurance policies. Write Your Own (WYO) insurers, as they were ironically called, were created to write policies under their own company names, but assume no real flood risk. Under this structure, the government transfers all underwriting losses to U.S. taxpayers.

The record makes clear that Congress' original intent was for the private market to eventually assume all flood risk. However, contradictory to this intent, the NFIP has acted to preserve its monopoly. Manifestly, the NFIP has been catastrophic for taxpayers and flood insurance buyers alike.

Trump's appointees to the U.S. Department of the Treasury and the U.S. Department of Homeland Security, where the NFIP is now housed, could act swiftly to replace defective regulations and NFIP practices that perpetuate the nationalization of flood insurance without congressional action.

New life for Flood Insurance Market Parity and Modernization Act?

The Trump administration will almost certainly support passage of the Flood Insurance Market Parity and Modernization Act, which passed in the House of Representatives last April with no dissenting votes, but stalled in the Senate as S. 1679. This measure aims to correct defective language misguidedly added to the last reauthorization of the NFIP in 2012. The defective language has proven to be a legal quagmire for federal lending regulators.

Trump appointees will likely take issue with the current efforts of WYOs to continue collecting their expense allowances while they simultaneously move the best risks to their own private market facilities. New appointees may well see this double-dipping as being akin to the kind of privatization that took place in Russia during the 1990s and make efforts to create a truly level playing field for all flood insurance competitors.

The House Financial Services Committee wisely took a step toward reform on Dec. 7 in releasing its Principles for Flood Insurance Reauthorization and Reform, which detail what they would like to see when the NFIP comes up for reauthorization. While not mentioned as one of the principles, it seems certain that the committee will require any reauthorization to contain measures prohibiting the largest WYO participants from replacing the NFIP monopoly with a WYO oligopoly. It seems certain that Congress and the Trump administration will disallow the continuance of unfair competition in the U.S. flood insurance space, whether by the NFIP monopoly or by a WYO oligopoly.

NFIP facing expiration in September 2017

Regardless of whether the modernization legislation passes or not, Congress must tackle how and whether to reauthorize the NFIP's charter, which expires in September 2017. Upon close inspection, a Trump administration might look at the issues surrounding the NFIP's reauthorization, see the $23 billion debt and the program's many shortfalls, and move to dismantle the whole thing, but that is improbable.

Given his enthusiasm for free enterprise, President-elect Trump seems likely to move away from a "Big Government" NFIP, particularly when private insurers have been improperly stifled since 1978. Hopefully, when the new president and new Congress take a closer look, they will see the need for free-market reform and clear the way for private insurers to operate — unobstructed — in the flood insurance market, in turn freeing the government, and its taxpayers from the massive financial burden that is the NFIP.