Article preview

Table

Hard Water

Top XX states in 2010 for claims
filed and claims paid under NFIP:

          Claims
State      Filed

N.J.       X,XXX
Tenn.      X,XXX
N.Y        X,XXX
Mass.      X,XXX
Texas      X,XXX
Ill.       X,XXX
R.I.       X,XXX
Ky.        X,XXX
N.C.       X,XXX
Pa.        X,XXX

          Claims
           Filed
State    ($XXXX)

Tenn.    XXX,XXX
N.J.      XX,XXX
Texas     XX,XXX
R.I.      XX,XXX
Ky.       XX,XXX
Ill.      XX,XXX
Mass.     XX,XXX
N.Y       XX,XXX
Iowa      XX,XXX
N.C.      XX,XXX

Source: NFIP

Full article

[ILLUSTRATION OMITTED]

Severe flooding this year in the United States has accentuated homeowners' sense of vulnerability even as the viability of the National Flood Insurance Program drifts along on currents of doubt.

In late September, with the NFIP still in debt from the 2005 storm season, Congress reauthorized the program until Nov. XX. But the action re-ignited debate about who should pay for repetitive and burgeoning flood losses on private property. Lack of enough flood insurance means more disaster aid must be provided by the federal government.

Congress created the NFIP in 1968, when private flood insurance generally was not available. But even after more than four decades, at least XX% of homeowners who live on land likely to flood once every XXX years--a standard used in NFIP flood maps--don't own the coverage, said Matt Gannon, assistant vice president of federal affairs at the National Association of Mutual Insurance Cos.

Also of significance is that premiums charged do not reflect the real risk. And while property buyers, whose land will be in a XXXyear flood plain, need to prove they have flood insurance at the time of purchase, no one monitors policy renewals and many owners drop the coverage, Gannon said.

The association's position is that NFIP is a necessary program, but it is in need of substantive reforms.

[ILLUSTRATION OMITTED]

One is that premiums reflect the actual risk of flooding and not be artificially suppressed, Gannon said.

Another is that flood maps need to be updated, a process that is under way. Gannon said the updates should include the identification of XXX- and even XXX-year flood plains; more participation by local authorities in helping to draw the new lines; and an appeals process for property owners who believe they are incorrectly included in flood-prone areas.

One of the biggest drains on the NFIP is severe repetitive loss.

In a report earlier this year, the Government Accountability Office found that X% of the policies represents XX% to XX% of the claims, Gannon said.

"That's because the NFIP will simply go in and pay property owners the claims to let them rebuild exactly where they got flooded, so there are properties that have made as many as five claims and have received a million dollars in insurance payments for a home worth $XXX,XXX," he said. "If you're a property owner and you know the high risk of flood but also know you're going to get a very reduced price in flood insurance, and you know you're going to get your claim paid, you have no incentive to not redevelop there. So that needs to be fixed."

Gerald Galloway, a U.S. Army Corps of Engineers' retired general and now a professor of engineering at the University of Maryland, said that in spite of years of reports about what needs to be done about flood insurance, the nation does not appear to be willing to take on the challenge of reforming the insurance program.

"There should be some transfer of responsibility from where it is now to others who should have the responsibility, but that's politically sensitive," he said.

Help From Lenders

Lenders could do a better job of ensuring that coverage stays in force, Galloway said.

"Lenders ought to be concerned, as others, with the fact that somebody could incur large losses, but lenders are no better than the average member of the public in identifying what the risk is and they don't seem to be concerned" he said.

The focus on the XXX-year flood zones shown on the maps may also inadvertently put people at risk. "You might be six feet out of the XXX-year flood plain, but were told you don't need flood insurance," said Galloway. "So you don't get it. But you don't understand the uncertainty of the line. Nature doesn't understand where that line is."

Public officials don't have a legal responsibility to notify people and educate them about the risks they face, Galloway said. "That's because risk is transferred to somebody else in many cases, so they are willing to bet there won't be a flood and they don't want to inhibit development. And if there is a problem, somebody else will take care of it."

This summer, flooding in sparsely populated Vermont was so powerful that it washed away bridges, destroyed sections of major highways and cut off whole towns from vehicular traffic. Many people were surprised that Vermont was vulnerable to such damage, and Galloway said many people there couldn't even buy flood insurance because their communities didn't choose to belong to the NFIP.

[ILLUSTRATION OMITTED]

"That requires the community to institute some sort of land-use controls, and that's not the Vermont spirit," he said.

According to the Federal Emergency Management Agency, which manages the NFIP, more than XX,XXX communities across the United States and its territories participate in the NFIP by adopting and enforcing flood plain management ordinances to reduce future flood damage.

In exchange, the NFIP makes federally backed flood insurance available to homeowners, renters and business owners in these communities.

Community participation in the NFIP is voluntary. In 2010, the average flood policy cost about $XXX a year, and the average paid claim over the past five years was nearly $XX,XXX.

Remapping Flood Zones

The third component of the NFIP is flood mapping, which FEMA says creates broad-based awareness of the flood hazards and provides the data needed for flood plain management programs and to actuarially rate new construction for flood insurance.

One goal of flood map modernization is to map XX% of the nation's flood risk based on population, flood history, growth potential and other characteristics. When complete, digital flood maps will cover XX% of the land area of the continental U.S., according to FEMA.

While FEMA takes on the financial risk, XX private insurers market and service NFIP policies under the Write Your Own program. Insurers and agents are compensated through an annual contract with FEMA/NFIP called "the arrangement," said Donald Griffin, vice president of personal lines with the Property Casualty Insurers Association of America.

Agents are then compensated directly by the insurer. In the arrangement in effect through Sept. XX, insurers received XX.X% of the premium.

Griffin said he believes that insurers and agents are satisfied with the compensation under the program. However, the 2004 Flood Insurance Reform Act placed many administrative burdens on participating insurers for which they have yet to be compensated. "Whatever legislation that eventually gets put into place to extend the program this year will likely include further administrative issues," he said.

Even though many of the WYO participants are satisfied with the program, not all are.
...