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Will flood insurance ideas do enough?

Proposals by the House and Senate this week have been praised by some but called a short-term solution by critics.

By TOM ZUCCO
Published June 29, 2006

Congressional efforts to reform the troubled National Flood Insurance Program drew mostly praise Wednesday from insurance industry officials in Florida, but a national consumer advocate says the legislation stops far short of a true fix.

Under proposals by the House and Senate earlier this week, the maximum flood insurance coverage for residential property would rise from $250,000 to $335,000, and coverage for contents per dwelling would go from $100,000 to $135,000.

The bill would also phase out subsidies on some vacation homes and commercial property, fine mortgage lenders who don't tell customers they have to buy flood insurance, and review the nation's flood maps, which help determine which property owners are required to buy flood insurance.

However, the bill will also raise premiums at a faster rate.

A part of the Federal Emergency Management Agency, the flood program was created in 1968 to help homeowners obtain flood insurance that private insurers were unwilling to offer. And like Florida's Citizens Property Insurance Corp., private insurers sell the government-subsidized policies.

The bill grew partly out of thousands of complaints from Gulf Coast property owners that many insurers shifted the financial burden of Hurricane Katrina to the government by declaring that flooding, not the wind, caused last year's massive destruction.

But no state is more connected to the federal flood program than Florida, which is home to about 1-million flood insurance policies, or about a fifth of the federal program's total.

"We are," said Jeff Grady, president of the Florida Association of Insurance Agents, "the 800-pound gorilla."

The proposed legislation, Grady said, makes certain that flood insurance is available while also acknowledging soaring property values.

The bill also addresses the issue of homes built along the coast that are repeatedly damaged by hurricanes and rebuilt.

"I'm absolutely encouraged," Grady said, "although it's sad it takes a Katrinalike event to get to this point."

As for rising premiums, Grady said they reflect a more accurate picture of the cost to insure a flood-prone property.

"For the last decade we've had an insatiable appetite for developing the coastline," he said, "because insurance was available at prices not realistic of the risks."

But consumer advocate Birny Birnbaum, former chief economist for the Texas Department of Insurance, thinks the bill offers only a short-term solution.

"If you look at the bill from the narrow perspective of the flood insurance program, it's an improvement in the sense that there's going to be more accountability," Birnbaum said. "What the country really needs is a national catastrophe plan. Private insurance companies need to offer all-perils policies."

Birnbaum argues that insurance companies have "hollowed out" their policies, throwing off flood and wind coverage to the government, which he says doesn't need to be in the business of providing insurance if the private market is doing it.

"Insurance companies are privatizing the profit and socializing the risk," Birnbaum said, "and no one is willing to stand up and say, 'If you want to be part of this market, you've got to write all perils.'

"This legislation will improve some accountability, but it doesn't begin to approach the comprehensive solution that's needed."

Tom Zucco can be reached at zucco@sptimes.com or 727 893-8247.

OF FLOOD POLICIES

According to the Insurance Information Institute, of the 75 counties nationwide that had the greatest concentration of flood policies last year, 27 were in Florida. They included:

Pinellas: 128,500 policies

Hillsborough: 55,600 policies

Pasco: 32,500 polices

Citrus: 6,500 policies

[Last modified June 29, 2006, 06:00:50]