Flood Safety Awareness Week

Flood Safety Awareness Week

     Because of frequent flooding of the Mississippi River during the 1960s and the rising cost of taxpayer-funded disaster relief for flood victims, Congress in 1968 created the National Flood Insurance Program (NFIP). It has three mandates: to provide residential and commercial insurance coverage for flood damage, to improve floodplain management and to develop maps of flood hazard zones. Flood damage to vehicles is covered under the comprehensive section of an auto insurance policy but there is no coverage for flooding in standard homeowners, or renters policies or in most commercial property insurance policies. Coverage is available in a separate policy from the NFIP and from a few private insurers. Despite efforts to publicize this, many people exposed to the risk of floods still fail to purchase flood insurance.

The widespread flooding associated with Hurricane Katrina in 2005, the Mississippi floods of 2011 and Hurricane Irene and superstorm Sandy in 2012 set in motion a debate about how to improve the federal program. Flooding is the most common and costly natural disaster in the United States, causing an average of $50 billion in economic losses each year. Most U.S. natural disasters declared by the President involve flooding.
RECENT DEVELOPMENTS
    National Flood Insurance Reform: The Biggert-Waters Flood Insurance Reform Act, which sought to make the federal flood insurance program more financially self-sufficient, was passed overwhelmingly by Congress in 2012. The law attempted to eliminate rate subsidies, discounts that many property owners in high-risk areas receive. In March 2014 Congress, in response to complaints that the law was making flood insurance unaffordable, passed legislation to restrict many of the rate increases called for in Biggert-Waters.
    According to the New Orleans Times-Picayune, the new law prevents any policyholder from seeing an annual rate increase exceeding 18 percent. It calls on the flood program’s administrator, the Federal Emergency Management Agency, to “strive” to prevent coverage from costing more than 1 percent of the amount covered. In other words, if the policy offered $100,000 of coverage, the premium would not exceed $1,000.
    The law also reinstates a practice known as grandfathering, meaning that properties re-categorized as being at a higher risk of flooding under FEMA’s revised maps would not be subject to large increases.
    It also ends a provision in Biggert-Waters that removed a subsidy once a home was sold. People who purchased homes after Biggert-Waters became law will receive a refund. Many lawmakers in coastal states were concerned that the higher cost of flood insurance would have a negative impact on the real estate industry.
    The subsidy will now be covered by a $25 surcharge on homeowners flood policies and a $250 surcharge on insurance for non-residential properties and secondary (vacation) homes.
    According to data from FEMA, most current flood insurance policyholders (81 percent, or 4.5 million) pay rates based on the true risk of flood damage and so were not affected by Biggert-Waters or the subsequent rollback. Properties most affected by the rate hikes were in high-risk flood zones; were built before communities adopted their first Flood Insurance Rate Map; or were second homes; or are second homes that have not been elevated. Others affected include businesses and those who live in homes that have been repeatedly flooded.
    Meanwhile, Louisiana, Alabama, South Carolina, Massachusetts and Florida have filed “friend of the court” briefs supporting Mississippi in a federal lawsuit against FEMA. The state is asking the court to prevent FEMA from implementing the increases mandated by Biggert-Waters.
    In Louisiana the state treasurer is suggesting that the state create its own flood insurance program. Insurers in Florida are seeking to write primary flood insurance as a stand-alone policy, as an endorsement to an existing property insurance policy or incorporated into the policy as a covered peril.
    Policies in Force: While the number of flood policies in force is growing, a significant portion of the population at risk of flooding still is not insured for flood damage, as the flooding in the Midwest in the spring of 2008, from Hurricane Ike and from superstorm Sandy in 2012 revealed. The latest available data show that in 2012, there were more than 5.6 million policies in force, compared with 5.0 million in 2005, the year of hurricanes Katrina and Rita. Premiums grew to $3.6.billion in 2012, from $2.2 billion in 2005. In 2012, 36,590 claims were paid, compared with 77,268 claims in 2011 and 213,288 in 2005. The cost of claims was $2.4 billion in 2012, compared with $2.4 billion in 2011 and $17.8 billion in 2005. Read More…