Sales of federal flood insurance rose sharply across the country last year after homeowners witnessed the devastation wrought by Hurricane Katrina and realized that typical insurance policies didn’t cover many victims’ losses.
From November 2005 to November of last year, the number of federal policies jumped more than 13 percent, far more than normal, according to the Federal Emergency Management Agency. Participation in coastal and other vulnerable areas spiked dramatically. In Mississippi, the number of policies jumped 61 percent, for example.
But strong increases were seen in 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 … 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 (NFIP).
The increase — roughly 700,000 new policies — will help spread the program’s risk of disaster around the country and leave more people protected instead of scrambling for taxpayer relief in the aftermath, officials said.
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, who directed the program in the 1970s and is now director of insurance programs for the Consumer Federation of America, 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 the coast, 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, which is expanding its flood coverage.
Kinney said he got a strong turnout at a recent series of classes on flood insurance, with a couple of hundred agents attending.
FEMA’s Kinerney said the agency will be watching closely to see if new policy holders renew their coverage as memories of recent storms fade.
Even with the violent 2005 storm season, some areas of the country saw roughly flat growth or even decreases last year. Policies dropped by 12 percent, for example, in Nebraska and 2 percent in Minnesota.
On the Net: National Flood Insurance Program _
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