Home Insurance: Congress Turns on the Floodlights

In 2004, Congress passed legislation designed to solidify the National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA). This legislation comes after the program, founded in 1968, was extended for a year in January 2003. The new legislation extends the program for five years, while making important changes to steady the cash outflow caused by repeat claimants in flood-prone areas.

Some of the changes Congress hopes to encourage are remedial in nature. For example, $40 million a year has been authorized to pay for elevation, relocation, demolition and flood-proofing of homes in flood zones that have been the subject of repeat claims.

Under the new legislation, the government would pay 90 percent of flood-proofing costs, and the property owner would pay 10 percent. This remediation would be optional for the homeowner, but the alternative would be bleak.

Home Insurance: Congress Turns on the Floodlights
Home Insurance: Congress Turns on the Floodlights

According to the Associated Press Online, one study reported that the subsidized NFIP plan costs insureds only about 38 percent of calculated risk rates, costing the government about $200 million a year. Under the new plan, refusal to accept the government’s “mitigation” offer would end the subsidy for the property owner, resulting in a significant increase in flood insurance premiums.

Dissenters in Congress include Rep. Billy Tauzin, a Louisiana Congressman, who complained that the bill unfairly targets his constituency, noting that those who live in earthquake- or tornado-prone areas are not similarly penalized.

The bill targets the most prolific claimants in the NFIP program. There are 48,000 properties that, within a 10-year period, have experienced multiple flood claims, exceeding the deductible by at least $1,000 and accounting for 25 to 30 percent of all claims. Of those, the program targets the 10,000 properties that top the list for frequency and severity of claims. Also targeted are homes whose multiple claims over time have totaled more than the value of the insured property itself.

With the spotlight on flood insurance, now is a good time to review your business or home management strategy regarding floods, the most common disaster scenario in the U.S., according to FEMA. But do not make the assumption that disaster relief will be available, preventing the need for flood insurance. Less than half of flooding events are declared disasters, says FEMA, often leaving insurance the sole source of compensation for victims.

Flood insurance is available to protect homes, condominiums and nonresidential buildings including farm and commercial structures in participating communities. It’s important to find out whether or not your community participates in the NFIP program, thereby making you eligible for flood insurance under the plan.

Consider buying flood insurance before a flood is imminent. Although it is possible to buy coverage just prior to a flood, the policy does not become effective for 30 days unless the flood map for your community was revised in the last year or the insurance is required to close a loan.

It is a commonly-held belief that homeowners insurance covers floods. While certain water damage may be covered under a homeowners policy, most flood damage is covered only by flood insurance (with the possible exception of an excess, or umbrella, policy specifically intended to cover extra expense incurred by flooding).

The NFIP defines flooding as a general and temporary condition during which the surface of normally dry land is partially or completely inundated with water. Flooding can be caused by:

  • Overflow of tidal or inland waters
  • Runoff, such as from rainfall
  • Mudslides or mudflows caused by flooding or
  • Soil erosion exceeding normal levels, causing collapse of land along a body of water

For more information about flood hazards, steps to take in mitigating flood damage, or how to deal with the aftereffects of a flood in your community, check out the FEMA Web site. For any questions concerning flood insurance available for your home or business, call us at 800-InsureMe for details.


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