Ex Post Flood Insurance

Here’s an idea from U.S. Rep. Gene Taylor (D. MS) described in the Clairon Ledger (9/27/05).  To obtain flood insurance after the fact, one must pay 10 years of premiums (subtracted from the claim pay out) and agree to stay in the flood insurance program for ever….I am assuming it would become part of the deed so that a sale of the property would not void the agreement.

It sounds like personal finite risk insurance.  If done properly the plan will essentially make the homeowner (as well as his successors and assignees),  pay back the value (or more) of the flood claim.  There seems to be a lot going for this proposal:

• It helps to solve part of the flood insurance participation problem,
• It makes it clear that homeowners policies don’t cover flood so homeowner insurance markets recover quicker,
• It reduces (but does not necessarily eliminate) the incentives for litigation,
• It is not a net loss to the tax payer, and
• Rebuilding can start sooner.

Comments

[bmartin]

Taylor's bill would apply to those outside the 100-year flood hazard areas. FEMA has admitted that its flood maps underestimated the 100-year flood elevation by as much as 8 feet on the Mississippi coast. That new 100-year flood estimate is still well short of Katrina's unprecedented surge. Tens of thousands of flooded and destroyed properties did not have flood coverage because the owners assumed some expertise among the government, their lenders, and insurers. They have no coverage but they are getting plenty of lectures from those who are to blame for the massive failure of flood insurance to perform its primary mission. Are consumers expected to have known that the NFIP map makers were incompetent, and that their insurance agents would not look out for them even though the insurers get the benefit of commissions and adjustment conflicts of interest without taking on any of the risks of flood insurance? The insurance industry is showing its disdain for its customers, saying they were all too stupid or too cheap to buy flood insurance. Where was the effort by NFIP or insurers to make sure the maps were accurate and to convince those in coastal areas that they were in fact at risk despite the maps? Many more people would have purchased flood insurance had those they expected to know the risks would have advised them that they needed it. NFIP failed and the insurers that NFIP pays to sell its product also failed. Don't let them get away with blaming their victims.

[Debra Riley]

841001: Hey, does anyone know where I can find a list of gas stations with low prices in my area?

[Nobody]

FWIW, the official rhetoric is, "Everyone lives in a flood zone", and "Everyone should have flood insurance." Whether most of us do or not is a different story. But the NFIP certinly isn't going around telling some people to buy flood insurance, and others not to.

http://www.floodsmart.gov/floodsmart/pages/fastfacts.jsp

[bmartin]

NFIP isn't going around telling anyone to buy flood insurance. It relies on lenders to require it inside the 100-year flood zone and hopes that private insurers sell it outside the 100-year flood zone. They aren't trying to sell flood coverage, even though their contracts with NFIP obligate them to do so.

[Bill Tyler]

RE: House Bill 3922

What Gene Taylor is proposing is a solution to a human tragedy that is difficult to fathom until you have walked the flooded debris piles that were once homes. Of the 171,000 dwellings on the Gulf Coast, more than 65,100 homes were destroyed, while 38,000 were severely damaged. That's over sixty percent of all homes on the Mississippi Gulf Coast. This is an astonishing fact. Of those homes only 8500 carried federally backed flood insurance. The net effect of Gene Taylor's proposal would save decades of litigation against insurance companies that promoted wind policies as hurricane insurance. For the most part federally backed flood insurance was not promoted on the Mississippi Gulf Coast because they are not profitable products for agents or companies. Insurance companies 'don't even write flood insurance policies', (they service them) the government does.

In a country that paid more than $38 Billion to 911 victims (1.8 million per family)
And a country that can afford a $220 Billion dollar war

Surely we can find the courage and compassion to help the victims of Katrina. Gene Taylor's proposal helps buy brick, timber and sheet rock to make there homes whole again. Everyone of us should support his proposal for the love of humanity and our fellow Americans who lost so much.

Yes, but what will the cost be?

Well for one, the federally backed flood insurance program is capped at 250K. Plus you can not insure property beyond the actual replacement value. In other words a house that costs 100K to replace is ineligible for 250K. Conversely, a home that would cost 1 million dollars to replace can only be insured for up to 250K. That by itself is a safeguard against spiraling costs and fraud. Other safeguards in Taylors bill is that the property would have to lay outside of the flood zone that requires flood insurance AND the property owner would have carried Wind and Storm insurance. In addition to this, property owners are required to pay 10 years of flood insurance 'in advance'. This provision creates a committment to the region. Additionally, the program will call for new construction to meet stringent safeguards against future storms based on revised flood maps which were part of the problem to begin with (old maps).

Lets take the Mississippi Gulf Coast for example. You either have a gutter or a slabber. Slabbers are completely destroyed while gutters are partially destroyed. The median price for a home on the coast is $125K, 56,600 x 125K = $8.75 billion for slabbers, for gutters 38K x 62.5K = $2.4 billion, so for about $11 billion dollars the entire MS Gulf Coast could rebuild under Taylors Plan. To put that into perspective, the Iraq war is currently costing abut 4 billion dollars a week. So for about three weeks of Iraq, the entire Mississippi Gulf Coast would be enabled to rebuild from Ocean Springs to Bay St Louis.

Now that solves the storm surge question for Mississippi and more than likely avoids a tremendous amount of litigation and hand wringing by lawyers and insurances companies. New Orleans is slightly different, but not completely. Again, Taylors plan along with flood insurance guidelines have the same stop gaps to prevent fraud and abuse.

For now two of three of the worst case disaster scenarios have already occurred, a terrorist attack, the flooding of New Orleans and next up is a major earthquake in California. If I were in charge, I would campaign every homeowner in California to buy earthquake insurance. Now.

Finally, Taylor's proposal is not an entitlement program, it's a plan to rebuild homes. A plan to help people put there lives back together. Many will return to the Coast while some will move to higher ground altogether. Either way the money will have to be spent on home construction. You better believe that every family who choses to stay on the coast will buy flood insurance for generations to come. If there ever were a day that this country needed a 'Rainy Day Fund', it would have been on August 29th, 2005.