Report: La. More Insured than any Other State for Flooding

March 21, 2006

In the aftermath of Hurricane Katrina, public officials and insurance experts predicted that the vast majority of property losses from the most costly flood in U.S. history would be uninsured.

But data from the office of Donald Powell, the Bush administration’s liaison to the disaster zone, shows that Louisiana was a more enthusiastic participant in the National Flood Insurance Program than any other state in the nation, The (New Orleans) Times-Picayune newspaper reported in its March 19 editions.

By Feb. 22, Louisiana residents had received $12 billion in flood insurance payments for claims related to Katrina, nearly as much as all the flood claims before Katrina paid by the government since the National Flood Insurance Program was created in 1968.

The largest chunk of that money landed in the Lakeview neighborhood of New Orleans, where property owners in a single ZIP code, 70124, received checks totaling more than $1 billion by the end of the year. The average payment was $143,023.

The huge payouts caught many people by surprise because so many pundits and members of Congress had predicted a majority of homes would be uninsured.

Members of Congress rose up in righteous indignation to scold residents of New Orleans, one of the most vulnerable cities in America, for failing to buy federal flood insurance and then coming hat in hand and asking to be bailed out with federal money.

House Speaker Dennis Hastert, R-Ill., questioned whether the federal government should spend money to restore sections of the city below sea level, and members of conservative think tanks urged Congress not to put any money into rebuilding properties that lacked flood insurance.

“Although flood insurance is heavily subsidized, many – even most – property owners in New Orleans do not buy this insurance, expecting the federal government to bail them out whether or not they are insured,” said Cato Institute Chairman William Niskanen in testimony to Congress about the disaster in September.

In fact, New Orleans and the rest of state participates heavily in the flood insurance program.

Of the 113,053 single-family homes in Louisiana that sustained hurricane-related flood damage in 2005, at least 72,787 – 64.4 percent – were covered by flood insurance, according to Powell’s data.

By comparison, just 30 percent of the 28,800 flooded homes in Mississippi had flood insurance.

To pay Katrina claims, the Federal Emergency Management Agency, which oversees the flood insurance program, has had to borrow $18.5 billion from the U.S. Treasury because the agency hasn’t collected enough in premiums. In the past 12 years, the agency has borrowed $1.4 billion to recoup after other disasters.

The problem lies in the flood insurance program itself – a rigged actuarial system that doesn’t even try to balance its books or calibrate premiums in ways that would encourage safer housing practices in areas that flood repeatedly.

“It’s kind of ironic – we’ve had to borrow so much money that we won’t be able to pay it back, and that has been cited as a weakness of the program,” said Ed Pasterick, a senior adviser to FEMA. “But in a way, you can cite it as a sign of the program’s success. So many people were protected by flood insurance that we had to replenish the fund.”

Katrina has made it clear that Louisiana is a standout success in a nation where the vast majority of people living in high-risk areas don’t buy flood insurance.

Consider Jefferson Parish, where Metairie became the first community in the nation to join the flood insurance program in 1969. Of the top 100 flood insurance markets, Jefferson Parish has the highest market-penetration rate in the country, with 84 percent of all single-family homes covered by the program, according to an analysis of flood insurance and census data by the newspaper.

Also in the top 10, in terms of market penetration are: St. Bernard Parish, ranking eighth with a 68.4 percent rate, and Orleans Parish, 10th with 66.7 percent. Altogether, six Louisiana parishes have market penetration rates that rank in the nation’s top 25.

At the other end of the spectrum is Harris County, home to Houston. Though Harris County has generated the third-highest number of repetitive flood claims in the nation – after Jefferson and Orleans parishes – its penetration rate for federal flood insurance is 25 percent.

On average, just 5.4 percent of single-family homes in the nation’s top 100 flood insurance markets have coverage, the newspaper’s analysis shows.

Information from: The Times-Picayune,

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