Bet 847

Duration 15 years (02020-02035)

“The United States National Flood Insurance Program (NFIP) will fail.The failure of the program will create a financial crisis as trillions of dollars in coastal real estate will become suddenly too expensive to insure, resulting in a crash of major markets like Miami and Houston”

Robert T Fleming


Fleming's Argument

The United States maintains a flood insurance subsidy scheme originally established in 1968 to help residents in areas vulnerable to flooding. The program as originally designed was intended to help vulnerable homeowners in a situation where adverse selection made private market flood insurance impossible. At the inception of the program the risks of Anthropogenic global warming were not well understood by the general public and floodplain managers. In recent years the program has come under more intense media and public scrutiny as the reserve fund for its payouts has been depleted multiple times, with issues and scandals relating to its handling arising under the Bush, Obama, and Trump administrations. I argue that over the next fifteen years, the real estate markets in the United states are going to begin to price in the fact that the NFIP is going to fail, and it will ultimately collapse by 2035. The reasons for its failure will be: 1. A combination of sea level rise and expectations of future sea level rise leading to constant sunny day flooding in certain areas. 2. Increasing occurrence and intensity of major hurricanes making landfall in areas with extensive assets at risk. 3. Increasing occurrence and intensity of non tropical storm systems creating significant losses to the program. 4. A pullout of mortgage lenders from the most at risk markets, resulting in a situation where no insurance policies are issued which effectively denies new premiums into the fund. 5. A final unwillingness by the federal government to fund the program in a manner that subsidizes NFIP properties at a rate not commensurate with the financial risks, forcing them all into the significantly more expensive private market. The ultimate failure will most likely stem from congress significantly reorganizing the program as was attempted by the legislation known as the Biggert-Waters Flood Insurance Reform Act of 2012. This legislation was ultimately rolled back for obvious political reasons, and if it had been followed through as originally intended, this bet would have likely already resolved in a manner to the outcome I have proposed. In an edge case, the failure of the program may even come about as a result of a major flooding event severely impacting the credit rating and solvency of the United States.

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