NOEL KING, HOST:
The first time Bill Pennington's house in Houston flooded, it was Memorial Day of 2015.
NICK FOUNTAIN, HOST:
Twenty-eight inches of rain fell, and he had no idea what to do.
BILL PENNINGTON: I'm doing, in hindsight, very stupid things like putting towels by the front door to keep the water from coming in. And then I turn around, and there's literally water bubbling up from the floor - like, in the middle of my house.
FOUNTAIN: Bill grabs his wife, his two kids, his two dogs. And they go up to the attic and stay there for six hours. They're watching the water creep higher and higher.
PENNINGTON: Which is an interesting experience. You know, kids have to go to the bathroom. Kids want to eat food. So it's like, OK, you know, (laughter) how does this work?
FOUNTAIN: The second time Bill's house flooded, it was Tax Day of 2016.
KING: Yeah, Bill got 16 inches. But this time, he knew to get out of the house. So he and his family went over to the neighbor's place.
FOUNTAIN: The third time Bill's house flooded, it was Hurricane Harvey just late last month. And by now, he's an expert.
KING: Yeah. He hears a meteorologist say the words biblical flood, and there's no panic. He packs up his family and heads over to his parents' house. And the next Monday, Bill puts on his work boots, and he pilots his truck a mile home. He pulls into the driveway, and he sees the weirdest thing.
PENNINGTON: Tons of watermelons all over the place.
PENNINGTON: Watermelons. And so I'm like, what in the world? Who is growing watermelons?
PENNINGTON: And, actually, it turns out there is a small grocery store four blocks away from me. But it's upstream, and it had gotten flooded. And at some point, a door had broken open, and all of these watermelons had flowed down...
PENNINGTON: ...Out of the grocery store into the street and the yard.
KING: (Laughter) Oh, my God.
FOUNTAIN: Bill pushes open his front door and looks inside. And for the third time in three years, his house has been destroyed by a flood.
(SOUNDBITE OF BRIAN FLORES, JASON ZAFFARY, JOHN HUNTER JR AND JONATHAN SLOTT'S "INTOXICATING")
FOUNTAIN: Hello, and welcome to PLANET MONEY. I'm Nick Fountain.
KING: And I'm Noel King. And today on the show, we're going to ask, why does Bill Pennington keep coming back to this house, and why does the government keep paying him to do it?
(SOUNDBITE OF BRIAN FLORES, JASON ZAFFARY, JOHN HUNTER JR AND JONATHAN SLOTT'S "INTOXICATING")
FOUNTAIN: Six years ago, when Bill Pennington bought his house, his mortgage lender made him buy flood insurance. That right there is the simple answer to why he is still here. He's insured. Bill is going to get a payout for his house and his stuff.
KING: Yeah. Insurance is a beautiful thing. It protects you against risk. It makes sure you don't lose everything. And insurers, in general, are not afraid of risk. They will insure just about anything - poker games, rockets, body parts. They will do that as long as they can charge enough to make it worthwhile. All insurers care about is, at the end of the year, they've taken in more money than they've paid out.
FOUNTAIN: Bill Pennington's flood insurance policy is not underwritten by a company. It's underwritten by the federal government. And when he gets a payout later this year, the money is going to come from the federal government.
KING: And to understand why that is, all you have to do is stand in Bill Pennington's driveway and look up and down the street.
PENNINGTON: Hi, Noel. How's it going?
KING: Good. How are you doing?
PENNINGTON: I'm doing great.
KING: So jeez, this is - it looks like the inside of your house is outside your house.
PENNINGTON: Yeah. Pretty much, that is, I would say, somewhere around 95 percent of my home and possessions out on the curb, in the trash.
KING: What are we looking at? What do you see?
PENNINGTON: Lots of sheet rock, lots of doors.
KING: And then I turn around, and I look down the street. And it's the same thing - sheet rock and doors and big bags of toys and clothes and garbage on the lawn of just about every single house on this street. Almost everyone's stuff is out on everyone's lawn.
FOUNTAIN: And this right here - what you're looking at - is something insurance companies do not like. They call it correlated risk or geographically correlated risk.
KING: And what it means is right at this moment, just about everybody on Bill's block is going to have a massive flood insurance claim.
FOUNTAIN: And that is a really scary idea to insurance companies. What insurance companies love is when risk is not correlated, right? Think about car insurance. If Bill got in a car accident, his neighbors are not also all going to get in car accidents the same day. And so insurance companies can deal with that. They're not afraid of risk. They just don't want it all to happen at the same time.
KING: Or in the same place. So up until the 1960s, most insurance companies weren't offering flood insurance. And then in 1965, there was this huge storm. Hurricane Betsy hit the Gulf Coast. It was a Harvey-style hurricane. It was a cataclysm. It wiped out thousands of homes, and most people did not have flood insurance.
FOUNTAIN: The government decided, we need to do something about this. And they did. They created this thing that still exists today. It's called the National Flood Insurance Program.
FOUNTAIN: It does a couple of things. One, it tries to convince people not to build in risky areas. But if they do, it tries to encourage them to build smart, to raise their houses up a little bit.
KING: But as we saw in Houston, deterrence does not always work. Cities get bigger. Weather patterns change. An area that wasn't high-risk becomes high-risk. So if you're in a risky area, and you get hit by a flood, the government has your back. Just as long as you've got insurance, the government will pay your claim.
FOUNTAIN: OK. So the government is going to act like an insurance company. It collects premiums from people like Bill and other Houstonites. And it tries to collect more every year than it pays out.
KING: Right. But here is where the problems start. A couple years after the NFIP, the federal government starts offering flood insurance. They realize not enough people are buying the insurance. So in the early '70s, the government doubles down. It says, look, Joe Homeowner in Houston, you live in a high-risk area. You have a federally backed mortgage. You have to buy flood insurance.
FOUNTAIN: But this is America. And in America, we do not like to be told what to do. You know what we love in America? Cheap stuff. So in the early '70s, the government pushes the price of flood insurance way down in an effort to get more people to sign up.
KING: And here's what's been happening since. People are paying those cheap premiums. The NFIP is chugging along. And then there's a bad year, a year with a lot of floods. And those premiums haven't added up to nearly enough money to cover everyone.
FOUNTAIN: If this was an insurance company, they would be bankrupt. But it's not. It's a government program. So the NFIP goes to the Treasury and says, hey, we need to borrow some money to pay people like Bill.
KING: But then we have a couple of more bad years with big floods. And the NFIP is borrowing more and more from the Treasury. And now here we are in 2017, and the NFIP owes the Treasury around $30 billion. And people we spoke to for this story said the NFIP is probably never going to pay that debt back. And that means taxpayers eventually will be on the hook for this debt.
FOUNTAIN: Now, yes, floods are hard to insure. That is a real thing, that correlated risk thing. But a big problem is the government offering those discounted rates.
KING: Yes, discounted rates - great for homeowners. But that kind of sucker-punches another key concept in insurance, which is your rates are supposed to reflect your risk.
FOUNTAIN: Yeah. Bill Pennington totally gets this.
PENNINGTON: When my son turns 18, and he's driving, I don't want to insure him, right? So he's going to be very expensive 'cause we have a long, long track record of 18-year-old boys doing stupid stuff.
KING: I actually went to Houston looking for someone like Bill, somebody whose house is flooded again and again because while we were reading about flood insurance, which is what we do here (laughter), we came across this amazing statistic. Over the course of the flood insurance program's life, a tiny percentage of houses - 1 percent - have eaten up more than a quarter of the claims.
FOUNTAIN: These are houses that have flooded over and over and over again.
KING: Like Bill's. So while I was standing with Bill in the shell of his house, I asked him, how much has insurance paid you out over the last three years? And he took out his phone, and he has a Dropbox app.
PENNINGTON: So this is how sick I am. So I think I still have, you know, the 2016 flood, the 2015 flood, all the documentation.
KING: And I look over his shoulder.
PENNINGTON: So this is a history of every claim on this property address.
KING: I'm just going to add it up.
PENNINGTON: OK, yeah.
KING: All right. Let's do this together. Here we go. (Whispering) Where the hell is my calculator?
This document on his phone shows that Bill's house has gotten flood insurance payments from the federal government five different times.
FOUNTAIN: I thought he was flooded three times.
KING: He was flooded three times, yes. But the House also flooded in 2001 and in 1983.
KING: So we add those up on my calculator. And then we get to Bill's claims. This is Memorial Day 2015, Tax Day 2016.
Eight two equals...
PENNINGTON: So at that point, we're now at $878,051.44.
KING: This house, for which you paid $525,000, has now cost the National Flood Insurance Program $878,051.44.
FOUNTAIN: Eight hundred and seventy-eight thousand dollars.
KING: Yes. And, Nick, here's the thing. That is before Hurricane Harvey, right? Bill has just filed another claim. He will certainly get another payout. He is insured. And this time, it's for newer, better stuff. So he's insured up to $350,000. To be conservative, we typed in - say he gets 300,000.
What is that?
PENNINGTON: That's $1.188 million and some change on the end.
FOUNTAIN: Bill's house will have cost the federal government more than a million dollars. What is he paying in premiums?
KING: He is paying $4,800 a year.
FOUNTAIN: That seems like nothing or at least not nearly enough.
KING: Do you feel bad that you are costing a lot of money?
PENNINGTON: I mean, maybe I'm some sort of psychopath or something, but it doesn't necessarily feel personal to me because it's - I feel like I haven't - I didn't intentionally flood my house. I didn't decide that I'm going to buy this house, and I'm going to make a killing on flood revenue, or something (laughter), right? So...
KING: Bill is not a psychopath. I mean, I considered it for a minute. But...
FOUNTAIN: (Laughter) No. I mean, you or I - if we were in Bill's position, I'm pretty sure we would do...
KING: Same thing.
FOUNTAIN: ...The same thing, right? Like, think about it. The government requires Bill's mortgage lender to require that he has flood insurance. So he gets flood insurance.
KING: And he pays premiums just like he would to a normal insurance company. Except this is not a normal insurance company.
What do you think you'd be paying if there was no government flood insurance program?
PENNINGTON: I don't think I could get insurance (laughter). Like, at this point, I don't - there's probably not an insurance company in the world that would insure my property. It's just like if I was a drunk driver that had gotten five DUIs in two and a half years. Then I wouldn't be able to get insurance. I probably wouldn't be able to get a driver's license. I wouldn't be able to drive. So...
KING: Your house is the drunk driver of homes.
KING: Your house is like a 17-year-old boy on a motorcycle who drinks of homes.
KING: All right. Now, he knows this is ridiculous. And when I was talking to Bill, he offered a solution. So, Nick, one thing I found out while I was driving around Houston is that most people in that city do not have flood insurance. It's only about 15 percent who do. And I'm asking them why. Why are you not insured? And they're telling me, because no one ever said I had to buy flood insurance.
PENNINGTON: Right, because remember, the government rule says that if you're in a flood-prone area, and you have a federally backed mortgage, your lender must make you buy flood insurance.
KING: Right. So I'm talking to people who are technically outside of the high-risk area. Or in the case of some older folks, you know, the mortgage is paid off. Nobody can tell you you have to buy flood insurance. And there's a third case. You were supposed to buy flood insurance, but you let it lapse, and nobody noticed. Now, all of this - all these people were kind of rolling around in the back of my mind. And then Bill said this.
PENNINGTON: If you're in a flood-prone area, which is probably anywhere along the Gulf Coast, everyone should be - should have flood insurance, you know, whether that has come through federal mandates...
KING: I just want to point out that you are a Texan.
KING: You are a Texan who owns guns.
PENNINGTON: Yes (laughter).
KING: You are - you say you lean libertarian.
KING: And you are saying everybody should have to buy flood insurance.
FOUNTAIN: Bill's argument is we make more people buy flood insurance, so we're spreading the risk around more. If I'm not in a risky area, my rates are going to be super low. I'm paying $10 a month for my third-story apartment. But because there are more of us paying, there's just a bigger pool.
KING: Yes. It sounds like it makes so much sense. But do you know what that would be?
FOUNTAIN: (Shouting) A mandate.
KING: That would be a government mandate that you have to buy insurance. And we tried that with health insurance.
KING: And we are still going through that with health insurance.
KING: So we had to call up the people who are actually insuring Bill.
FOUNTAIN: The Federal Emergency Management Agency.
KING: Yes, FEMA. FEMA administers the flood insurance program. So we called up Andy Neal, who's an actuary with FEMA.
FOUNTAIN: It's, like, the most boring job in the world.
KING: Not to Andy Neal.
ANDY NEAL: You know, I'm a flood fighter. I'm helping to make our country safer.
KING: Andy Neal is basically the guy insuring Bill.
FOUNTAIN: And he hasn't always worked for the government. He's been in the private sector, too. So we asked him this question about the National Flood Insurance Program - NFIP - that we had been thinking about for this entire time.
KING: If you were a private company, would you insure Bill?
NEAL: Well, you know, it's an interesting thing. So the NFIP does not get to say no. So in my rate-setting process, we do have high rates for riskier people, moderate rates for moderately risky people and low rates for low-risk people. For the very riskiest of structures, for the very riskiest of - across all lines of insurance, there's a difficulty in offering insurance to the very highest-risk people.
KING: But you've got to do it.
NEAL: I have to do it. I have to take all comers.
FOUNTAIN: He kind of dodged our question about private insurance.
KING: Well, yes. But he's an employee of the federal government. And as an employee of the federal government, he has to insure Bill's house.
FOUNTAIN: This would all work out better if Andy Neal could charge Bill more for his insurance premiums so that Bill's rates would actually reflect his risk. And maybe he would want to move to another neighborhood or put his house up on stilts.
KING: Yeah. But Andy Neal and FEMA don't really have control over how and when and where they raise rates. Those decisions are made by Congress.
NEAL: Well, in terms of that, I would like to say that Congress has a very difficult - it's a very difficult policy area to decide how to affect the space.
KING: It's hard. You tell people, you have to buy insurance. And then on top of that, your rates are going to be really high. And this upsets people. And upset people upset politicians.
FOUNTAIN: There is this other program that FEMA has where they give grants to elevate houses like Bill's or tear them down and help people move to another neighborhood. But those grants are really hard to get. Bill has already applied, and he got turned down.
KING: You get the impression here that FEMA and people like Andy Neal are really trying to make this situation better. In fact, back in April, Bill Pennington in Houston got a letter in the mail. The letter said, Bill, you are now enrolled in National Flood Insurance Program Direct.
FOUNTAIN: Wahoo (ph).
PENNINGTON: They don't tell you anything other than that. You know, you're moving to NFIP Direct.
KING: You didn't know what NFIP Direct meant.
PENNINGTON: You know, I knew it probably (laughter) wasn't a good thing.
FOUNTAIN: It is not a good thing. It means, hey, buddy, your house keeps flooding again and again. We're going to keep raising your rates until they're closer to what you should be paying. And Bill - he just doesn't want to do this again - flood, rebuild, flood, rebuild, watch his insurance rates tick higher and higher.
KING: There's an obvious question here, which is, why doesn't Bill just move to a different neighborhood? And I asked him that. And he said, look, I like this neighborhood. The schools are great. I went to these schools. My dad went to these schools. I want to stay in my neighborhood.
FOUNTAIN: So Bill is going to figure out a way to stay. He's going to take that insurance payout. He's going to try to get a loan. He's going to try to put his house up on stilts or maybe tear it all down and rebuild just a little bit higher. But he is going to make sure that he never floods again.
KING: Those are all things that Bill plans to do, but they will take time. You know what he's currently doing? He's currently paying his way-too-low insurance premiums. And say he doesn't get his house elevated in time. Say there's another flood. The federal government will have him covered.
We always want to hear your story ideas. Email us. We're email@example.com. We are on Twitter - too much, probably - and on Facebook. Find us at @planetmoney. Today's show was produced by the great Sally Helm. PLANET MONEY'S supervising producer is Alex Goldmark. Bryant Urstadt edits the show. A lot of people helped us out with today's show.
We want to especially thank the very brilliant Carolyn Kousky of Wharton Risk Management and Decision Processes Center, Craig Fugate, who used to run FEMA, Steve Ellis at Taxpayers for Common Sense, Rob Moore at the NRDC and David Conrad, who consults for the Association of State Floodplain Managers. Down in Texas, thanks to Aaron Dukha (ph) and Sam Craig (ph). And thanks, you guys.
FOUNTAIN: And if you're looking for another show to listen to, I highly recommend It's Been A Minute With Sam Sanders. Noel was on it a few weeks back. My favorite part about the show is, once a week, they ask listeners, what's the best thing that happened to you this week? And they play this montage from all around the country. I cry nearly every time. You can find it at npr.org/podcasts or on the NPR One app. I'm Nick Fountain.
KING: And I'm Noel King. Thanks for listening.
(SOUNDBITE OF BRIAN FLORES, JAMES DRISCOLL, JOHN HUNTER JR AND JONATHAN SLOTT'S "GATOR SOUP")
FOUNTAIN: Noel, Bill Pennington is not the only person in this situation, right?
KING: No. There are a lot of these houses that flood again and again. While I was in Houston, the most extreme case that I heard of is this legendary house that is cited in a lot of articles. It flooded 16 times in 18 years and was rebuilt again and again by the NFIP.
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