Recently, Congress passed legislation designed to solidify the National Flood Insurance Program (NFIP) managed by the Federal Emergency Management Agency (FEMA). This legislation comes after the program, founded in 1968, was extended for a year in January of 2003. The new legislation will extend the program for five more years while making some important changes to staunch the flow of red ink caused by repeat claimants in flood-prone areas.
Some of the changes Congress hopes to encourage are remedial in nature. For example, $40 million a year has been authorized to pay for elevation, relocation, demolition and flood proofing of homes in flood zones that have been the subject of repeat claims. Under the new legislation, the government would pay 90% of flood proofing costs, and the property owner would pay 10%. The remediation would be optional for the homeowner, but the alternative would be bleak. According to the Associated Press Online, one study reported that the subsidized NFIP plan costs insureds only about 38% of actuarial risk rates, costing the government about $200 million a year. Under the new plan, refusal to accept the government’s “mitigation” offer would end the subsidy for the property owner, resulting in a significant increase in flood insurance premiums.
Dissenters in Congress include Rep. Billy Tauzin, a Lousiana Congressman, who complained that the bill unfairly targets his constituency, noting that those who live in earthquake or tornado prone areas are not similarly penalized.
The bill targets the most prolific claimants in the NFIP program. There are 48,000 properties that, within a 10-year period, have experienced multiple flood claims exceeding the deductible by at least $1,000, accounting for 25 – 30% of all claims. Of those, the program targets the 10,000 properties that top the list for frequency and severity of claims. Also targeted are homes whose multiple claims over time have totaled more than the value of the insured property.
With the spotlight (or floodlight?) on flood insurance, now may be a good time to review your strategy for managing your business or home’s exposure to floods, the most common disaster scenario in the US according to FEMA. But do not make the assumption that disaster-relief will be available, obviating the need for flood insurance. Less than half of flooding events are declared disasters, says FEMA, often leaving insurance the sole source of compensation for victims.
Flood insurance is available to protect homes, condominiums and nonresidential buildings including farm and commercial structures in participating communities. It’s important to find out whether or not your community participates in the NFIP program, thereby making you eligible for flood insurance under the plan.
Another important consideration is to buy insurance before an imminent flood. Although you can buy coverage just prior to a flood, there is a 30-day waiting period before the policy becomes effective unless the flood map for your community was revised in the last year or the insurance is required to close a loan.
It is a commonly held belief that homeowner’s insurance covers floods. While certain water damage may be covered under a homeowner’s policy, by and large most flood exposures are uncovered by any other policy (with the possible exception of an excess or umbrella policy specifically stated as excess above an NFIP backed policy).
The NFIP defines flooding as a general and temporary condition during which the surface of normally dry land is partially or completely inundated. The cause of flooding can be:
- Overflow of tidal waters or inland waters;
- Runoff, such as from rainfall;
- Mudslides or mudflows caused by flooding; or
- Collapse of land along a body of water from erosion exceeding normal levels.
To find out more about flood hazards, steps to take to mitigate flood damage or to deal with the after-effects of a flood in your community, check out the FEMA website at www.fema.gov/nfip. Naturally, if you have any questions about flood insurance available for your home or business, call us for details.