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You can count on the federal government sticking its nose where it's not wanted, but not in the case of flood insurance, surely one of the most worthwhile programs ever passed by Congress. The program, begun in 1968, may be flawed and in debt. Still, it's a good idea and deserves to be fixed.

After Senate committee passage of a flood reform bill last fall, Banking Committee Chairman Chris Dodd, D-Conn., said the bill "helps to ensure that the flood insurance program can continue to provide critical insurance coverage so that people are not crippled when facing damage to their homes and businesses."

Millions of people and thousands of businesses operate near water. But if rivers occasionally burst their banks, why do people bother living and working in flood plains? Rivers and tributaries provide vital and efficient two-way transportation for goods and services from the nation's interior to the sea, that's why.

Tons of grain and manufactured goods flow up and down the Mississippi and Missouri rivers every year. Hauling those products from land onto barges requires cranes, railroad tracks, grain storage elevators and other heavy equipment. All that property is worth billions of dollars and is likely insured through commercial policies available in the private sector. But for people who live and work in the communities near rivers, dock workers, fork lift operators, marina managers, or restaurant owners, for example, the NFIP provides them with a promise to make whole should they suffer a loss.

NFIP has helped reduce losses, to the tune of $1 billion annually in flood damages, according to the Federal Emergency Management Agency, which administers the program. That's because floodplain management regulations require new construction to meet stricter construction standards.

"Structures built to NFIP criteria experience 80 percent less damage through reduced frequency and severity of losses," according to a program document by the Federal Insurance and Mitigation Administration.

So, the national flood program's done some good in at least two ways: It has helped make whole property owners and it has required sounder construction practices for buildings in flood plains. Hence the need to reauthorize the program, which is scheduled to expire in September.

For the past year at least, the House and Senate have bickered over the different versions of the flood plan reauthorization bill, and just last month FEMA's senior aide Edward Pasterick said Congress may renew the program without adopting any reform. One of the sticking points over renewal is the subsidy that the program provides to policyholders who pay less than the actuarial rate for coverage. Another is a $17.3 billion loan the program has outstanding with the Treasury department.

Those are legitimate and hefty sticking points. But remember, the $17.3 billion loan was due mostly to covering losses on the part of several thousand property owners located in a relatively confined area related to the very extreme--and very rare--2005 hurricane season. The massive loan isn't the result of helping victims of the more moderate risk of seasonal flooding of the nation's rivers or tidal surges of estuaries or the occasional tropical storm.

The largest NFIP payout before the 2005 hurricane season was in connection with Tropical Storm Allison in June 2001, the program's first "billion-dollar" storm. The largest flood event claims payout previous to Allison was the $583 million in claims paid in connection with Louisiana flooding in May 1995.

Government intervention, by definition, means a subsidy. The only question is whether the cost of the subsidy is worth the price to taxpayers. For a government which has seen fit to spend $12 billion every month to prosecute a war in Iraq, helping make whole property owners living in a nation blessed with two coasts is a burden we can afford to bear.

CYRIL TUOHY is managing editor of Risk & Insurance®.

April 1, 2008

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