Remapping California flood zones might spur wave of policy sales

Homeowners who witnessed the devastation wrought by Hurricane Katrina seem to have boosted flood insurance sales dramatically in 2006, and federal government actions also might force others to purchase flood coverage, as well. The Federal Emergency Management Agency is redrawing its flood maps around Sacramento, Calif., expanding areas designated as 100-year flood protected, and potentially increasing the need for property owners who have federally backed mortgages to purchase federal flood insurance, reported AP News Service.

According to FEMA, from Nov. 2005 to Nov. 2006, the number of federal flood policies jumped more than 13 percent, far more than normal. Participation in coastal and other vulnerable areas spiked dramatically. In Mississippi, the number of policies jumped 61 percent, for example.

Strong increases were seen in northeastern and western states as well. Idaho had a 24 percent increase, and Rhode Island, 21 percent, the agency indicated.

“I would have to believe that very few people think their regular insurance program covers flood. You’d have to be living under a rock to still think that,” said Ted Kinney, who directs training programs for Alabama Independent Agents Association, an insurance trade group in Birmingham. “People in the past … thought that the government would come in and bail them out, and now they’re realizing that the government won’t do that.”

The numbers are a welcome trend for the federal government, which has struggled to gain more participation in the National Flood Insurance Program (NFIP).

The increase — roughly 700,000 new policies — will help spread the program’s risk of disaster around the country and leave more people protected instead of scrambling for taxpayer relief in the aftermath, officials said.

It also will provide a badly needed injection of cash to the program in the form of annual premiums.

Congress launched NFIP in 1968 to help homeowners living in flood-prone areas get flood insurance to complement private policies restricted to covering wind, fire and other hazards. Private agents sell the federal policies, which are often subsidized by taxpayers because premiums don’t factor in the real risks of damage.

Homeowners can get up to $250,000 in structural coverage and another $100,000 for personal property. Commercial property owners can get up to $1 million in coverage. On average, residential premiums are about $400 per $100,000 of coverage.

The program was self-financed for decades until the storms of 2005 wrecked its finances. NFIP expects to be about $20 billion in debt to the Treasury once all claims are paid. The program takes in $2 billion a year in premiums, but more than a third of that goes toward debt payments.

The recent surge in policy purchases put the program over $1 trillion in liability, with some 5.4 million policies.

Redrawing maps to expand flood areas could potentially help improve finances as well. According to AP, about 1,600 miles of levees in California’s Central Valley are being examined by federal officials. Building restrictions likely will be imposed once new flood maps are adopted.

FEMA affirms that the risk of a potentially catastrophic flood is greater than originally believed. In particular, FEMA officials believe the levees in Natomas, Calif., are substandard.

In the meantime, many private insurers are reducing their flood coverage or increasing prices along the coast. However, some companies say they are finding renewed interest in flood insurance from wealthy homeowners.

“We are seeing very brisk interest,” said Mark Schussel, vice president of public relations at The Chubb Corp., a global insurer based in New Jersey, which is expanding its flood coverage.

Butch Kinerney, a FEMA spokesman, said there is interest in flood insurance. He said he got a strong turnout at a recent series of classes on flood insurance, with a couple of hundred agents attending. Regional flooding in the Northeast and elsewhere last year probably contributed to the spike. But the agency will be watching closely to see if new policy holders renew their coverage as memories of recent storms fade, he added.

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