From the NFIP web site:
Before 1968, the federal government’s flood initiatives consisted of disaster relief to victims in the event of a flood, or flood control projects such as dams, levees and seawalls.
While well-intentioned, this approach did little to ease the financial burden of most flood victims. Worse, the public couldn’t buy flood coverage from most insurance companies, which regarded floods as too costly to insure.
Congress established the National Flood Insurance Program (NFIP) to address both the need for flood insurance and the need to lessen the devastating consequences of flooding. The goals of the program are twofold: to protect communities from potential flood damage through floodplain management, and to provide people with flood insurance.
What this means is that private insurers regard flood insurance as too risky, i.e., a bad investment. The lack of available flood insurance provided a disincentive to build in flood prone areas.
However, with NFIP that disincentive was removed. With taxpayer subsidized insurance available, it became less risky to build in flood plains. And with the risk removed, development boomed.
In other words, taxpayers are forced to support a program that encourages building in flood plains. And to make matters worse, taxpayers are then forced to pay for rebuilding and recovery efforts through FEMA and similar programs.
This is a classic example of the government intervening and providing a service below its market value. As always happens in such situations, demand increased. And that demand resulted in more beach front properties and the resulting expenses when devastating storms strike.
The solution is not more interventions. The solution is not prohibitions on building on beaches or other infringements of property rights. The solution is to get the government out of the insurance business.
If individuals wish to build on their beach property, they have a moral right to do so. They do not have a moral right to force others to subsidize their insurance or rebuild their home. If they can obtain insurance, or self-insure, the financial risk is entirely theirs (or their insurer's).
The reasonableness of building on the beach is open to debate. But that is a decision that should be left to the property owner based on his judgment. However, when the government provides subsidized insurance, the property owner is no longer required to act with the same level of responsibility. Taxpayers across the nation will shoulder a little of his responsibility, and thus encourage behavior than he might otherwise shun.
The government flooded the insurance market with taxpayer money and as a result a lot more homes get flooded.