Closing Market Report
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Horror stories from Katrina spur rush on flood insurance
By Ben Evans
Associated Press
WASHINGTON » Sales of federal flood insurance rose sharply across the country last year as homeowners saw the devastation from Hurricane Katrina and realized that typical policies didn't cover many losses.
In the 12 months beginning in November 2005, the number of federal policies jumped more than 13 percent, according to the Federal Emergency Management Agency. Participation in coastal and other vulnerable areas spiked dramatically. In Mississippi, the number of policies rose 61 percent.
Strong increases were reported as far away as Northeastern and Western states, as well. Idaho had a 24 percent increase, and Rhode Island 21 percent.
"I would have to believe that very few people think their regular insurance program covers flood. You'd have to be living under a rock to still think that," said Ted Kinney, who directs training programs for Alabama Independent Agents Association, an insurance trade group in Birmingham. "People in the past too thought that the government would come in and bail them out, and now they're realizing that the government won't do that."
The numbers are a welcome trend for the federal government, which has struggled to gain more participation in the National Flood Insurance Program.
The increase -- roughly 700,000 new policies -- will help spread the program's risk and leave more people protected from disaster instead of scrambling for taxpayer relief in the aftermath. It also will provide a badly needed injection of cash in the form of annual premiums.
Congress launched NFIP in 1968 to help homeowners living in flood-prone areas get flood insurance to complement private policies restricted to covering wind, fire and other hazards. Private agents sell the federal policies, which are often subsidized by taxpayers because premiums don't factor in the real risks of damage.
Homeowners can get up to $250,000 in structural coverage and another $100,000 for personal property. Commercial property owners can get up to $1 million in coverage. On average, residential premiums are about $400 per $100,000 of coverage.
The program was self-financed for decades until the storms of 2005 wrecked its finances. It expects to be about $20 billion in debt to the Treasury once all claims are paid. It takes in $2 billion a year in premiums, but more than a third of that goes to debt payments.
Congress has considered various proposals recently for reforming the system, including forgiving the debt, raising premiums and setting new conditions.
The recent surge in policy purchases put the program over $1 trillion in liability, with some 5.4 million policies.
Along with Katrina, regional flooding in the Northeast and elsewhere last year probably contributed to the spike, said Butch Kinerney, a FEMA spokesman.
FEMA also has more aggressively marketed the program. But Robert Hunter, director of insurance programs for the Consumer Federation of America who ran NFIP in the 1970s, said FEMA should do much more outreach to vulnerable owners.
"People have a tendency to underestimate flood as a risk," he said, noting that participation in most flood plains is below 25 percent. "I'd like to see much more marketing. ... I think they've failed miserably."
Although many private insurers are reducing their flood coverage or increasing prices along coastal areas, some companies say they are finding renewed interest in flood insurance from wealthy homeowners.
"We are seeing very brisk interest," said Mark Schussel, vice president of public relations at the Chubb Corp., a global insurer based in New Jersey.