Sandy stresses Federal flood insurance program. ? coastlinesproject

Early estimates suggest that Hurricane Sandy will rank as the nation?s second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its onerous debt.

Congress, just this summer, overhauled the flawed program by allowing large increases in premiums paid by vacation home owners and those repeatedly hit by floods. But critics say taxpayer money should not be used to bail it out again ? essentially subsidizing the rebuilding of homes in risky areas ? without Congress? mandating even more radical changes.

?We are now just throwing money to support something that is going to end up creating more victims and costing more money in the future,? Representative?Earl Blumenauer, Democrat of Oregon, said of the program, which insures 5.7 million homes nationwide near coasts or flood-prone rivers.

Even with the new rules, critics argue, it will be many years, if ever, before many homeowners are required to?pay premiums?that accurately reflect the market cost of the coverage. Some communities have?long resisted?imposing more appropriate building codes to prevent damage, putting the program at further risk of devastating losses when storms like Hurricane Sandy hit. And despite some efforts in recent years, many of the flood maps the program relies on are out of date ? which can have expensive, and even deadly, consequences in this era of rising sea levels if homeowners are not cognizant of the risks they face.

The program?s giant debt makes matters worse because simply covering the interest owed the Treasury consumes from $90 million to $750 million a year, depending on interest rates. This means it is much harder to build reserves for future catastrophes.

But others on Capitol Hill argue that the changes adopted in July are an important first step, and that Congress must give the?Federal Emergency Management Agency, which runs the program, a chance to apply them before any additional changes are considered.

Already,?44 members?of the House of Representatives have called for Congress to appropriate whatever money is needed to help victims recover from Hurricane Sandy, and aides on Capitol Hill say that under such extreme losses, they expect lawmakers will do what they have to do to keep the program solvent ? even amid a?federal budget?crisis.

?It is a program we require people to participate in, so we have to make sure it is adequately funded to handle claims,? said Representative?Timothy H. Bishop, Democrat of New York, whose district in Long Island has more than 100 miles of coastline. ?You can?t say: ?Awfully sorry. Hope this works out for you.???

The federal government?s flood insurance program, established in 1968, is one of the world?s largest. The insurance is?mandatory?for homeowners with a federally backed mortgage if they live in an area subject to flooding at least once every 100 years. The average annual flood insurance premium is about $615, but for homeowners in areas at higher risk of flooding, an annual policy can cost from $1,200 to $3,000, according to Steve Harty, president of National Flood Services, a claims-processing company, depending on the level of coverage.

The federal program collects about?$3.5 billion in annual premiums. But in four of the past eight years, claims will have eclipsed premiums, most glaringly in 2005 ? the year of Hurricanes Katrina, Rita and Wilma ? when claims totaled $17.7 billion. Private insurance companies have long avoided offering flood insurance to homeowners.

?It?s like rat poison to them,? said Tony Bullock, an insurance industry lobbyist, explaining how the risk outweighs the benefit for private insurers. ?You need the federal backstop.?

But the program is still a moneymaker for the private insurance industry. Even though these companies bear none of the risk, they take, on average, $1 billion a year of the premiums the government collects, as compensation for help in selling and servicing the policies. Federal auditors argue the payments are?excessive.

FEMA officials declined to address whether changes beyond the already passed legislation are needed to strengthen the program.

?These reforms are being implemented,? the agency said in a written statement. ?Right now, we?re focused on helping survivors.?

More than one million property owners who live in homes at least four decades old also have historically paid only about 40 percent of the estimated true cost of the coverage the government provides ? in large part because of lobbying by the real estate industry, mortgage brokers, homeowners associations and other groups to keep federal authorities from charging more.

Perhaps the most troubling problem, program officials acknowledge, is that only a tiny share of enrolled properties accounts for a giant share of the overall claims, as the properties are repeatedly flooded and rebuilt in low coastal regions and in hurricane flight paths.

One Biloxi, Miss., property valued at $183,000 flooded 15 times over a decade, costing the program $1.47 million, according to federal data provided by the agency to a member of Congress. Another in Humble, Tex., has resulted in over $2 million in flood payouts even though it was worth just $116,000.

Read more in; Storm Surge; A Coastal Village Battles the Atlantic, Just Seconds From the Ocean; Coastal Living in the wake of Katrina and Beach Wars; 10,000 Years on a Barrier Beach. See Strawberry Hill, UPNE, and Schiffer book tabs at the top of this page.

Source: http://coastlinesproject.wordpress.com/2012/11/13/sandy-stresses-federal-flood-insurance-program/

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