Flood insurance premiums and coastal rebuilding

The consequences of Hurricane Sandy continue to play out along coastal areas where people are deciding what to do about damaged homes.  The New York Times had an article the other day about households thinking about rebuilding, but faced with suddenly much more expensive flood insurance.

© Rosanne Salvatore and Kathryn Kattalia/New York Daily News

Properties in areas classified as at risk for "severe and repeated" flooding will pay new, higher insurance premiums starting October 1 of this year, with 25 percent increases each year until rates reflect the actual cost of providing the insurance.  Owners can reduce these rates by raising their homes by several feet, or by moving out of the riskiest areas.  In either case these measures are likely to be expensive and many are reluctant to take them.  Some property owners have started to organize to oppose the higher rates.

Focused as it is on the financial strains of individual homeowners, the NYT article tends to be sympathetic.  But how much sympathy do they deserve?  The Times article does mention that many people with properties in at-risk areas have been paying subsidized rates.  And a 2011 report from the Center for Public Integrity notes that, nation-wide, property owners in flood-prone areas are paying only about 45 percent of the full-risk price.  One effect of this has been that the National Flood Insurance Program is badly under-funded and several times has had to borrow from the U.S. Treasury to meet insurance obligations.
 
I recognize that people along the New york and New Jersey shores face difficult decisions.  But even so it has to be asked whether there is any public policy reason to use federal resources to subsidize people so that they can continue to live in these high-risk areas?