Flood Insurance: Crack For the Wealthy

[legion]

Sorry for the cut and paste, but I have access to some websites that I can't post links to. I added the bold type to the parts I felt were particularly important.

Taxpayers Get Soaked (editorial)
NEW YORK (The Wall Street Journal)--You may never have heard of Camille Howard of New Orleans's Jefferson Parish. But if you pay taxes, you've helped her repair her home with federal flood insurance (NFIP) -- no less than four times since she has owned it, and seven times before that. And therein lies a tale of policy mistakes and taxpayer liability.
The federal government says some 120,000 properties nationwide have received "multiple" taxpayer subsidized flood insurance payments -- at a cost of $7.25 billion. An astounding 26,000 of those have received four or more flood payments. One property in Houston flooded 16 times and sucked up $807,000 in repairs -- seven times its market value. The owner keeps rebuilding, mother nature keeps tearing it down, and hapless taxpayers keep footing the bill.

We're not casting aspersions on Ms. Howard or other New Orleans residents who will soon be getting billions of dollars in flood insurance checks, even though their homes had suffered flood losses before Hurricane Katrina hit. The real villain here is Congress for allowing this free lunch to continue.

The fact that many flood payments go to wealthy owners of beachfront vacation homes seems to have eluded politicians in both parties. Dauphin Island off the coast of Alabama, for example, is one of the nation's most vulnerable barrier islands and has lost nearly 500 expensive vacation homes and rental properties since 1979. The island has nonetheless received more than $21 million in federal flood payments. Congress is equally oblivious to the basic business concept that insurance is supposed to cover its costs via premiums. NFIP premiums currently cover just 60% of expenditures, which explains why the program is $21 billion in debt.

Now the feds want to make the problem worse with the tens of billions of dollars they are spending on home reconstruction in New Orleans. J. Robert Hunter, who directed the flood program for 10 years, warns that thousands of homes with repetitive losses are scheduled to be rebuilt despite the huge risks of damage from the next hurricane. He recently told the Senate Banking Committee that homes built to FEMA's specifications immediately prior to Katrina were elevated 12 or 13 feet too low -- an error of astonishing magnitude. "People all over the country are building what they think are safe homes," he warned. "But, to varying degrees . . . they are in peril."

Federal flood insurance, in short, is the equivalent of paying heart patients for smoking cigarettes and then also paying for their next triple bypass. Without NFIP, thousands of the homes swept away by Katrina in low lying flood plains would probably have never been built in the first place, while homeowners and local governments would have taken flood-mitigation precautions to reduce property losses.

Ideally Congress would abolish the NFIP, and homeowners would purchase flood insurance in the private market or accept the risks of building. But Congress has a history of bailing out homeowners from natural disasters, so abolishing the program would eliminate premium collections -- arguably leaving taxpayers worse off. Half of the New Orleans homeowners who will receive flood assistance from Katrina never bothered to pay any flood-insurance premiums. But that isn't stopping Congress from paying them to rebuild. Why does anyone pay premiums?

The most prudent reform strategy will be proposed this week by Senate Banking Chairman Richard Shelby. The Alabama Republican would move the program toward actuarial soundness by charging risk-based premiums. The riskier region you build in, the higher premiums you will pay. This would require updating maps of flood regions, which in places like New Orleans are now tragically obsolete. Mr. Shelby also argues that there's no reason for taxpayers to underwrite insurance for luxury or vacation homes, or for repetitive loss properties. Amen to that.

Mr. Shelby's efforts are meeting with stiff resistance from colleagues in the six Gulf states where homeowners receive well over half of all federal flood payments. Housing industry lobbyists also love the give-aways and are calling for the program's expansion. Which is all the more reason that Congress should move swiftly to pass Mr. Shelby's reforms. Another hurricane season begins in June, and this time it's taxpayers who need protection from getting washed out.

[Jim Richards]

if you live in harm's way (flood, hurricanes, etc.), you really need to be self insured. why our tax money goes to pay for their rebuilding there totally escapes me.

[Jims5543]

Originally posted by Jim Richards
if you live in harm's way (flood, hurricanes, etc.), you really need to be self insured. why our tax money goes to pay for their rebuilding there totally escapes me.

What about rivers flooding in the Northeast? Should no one rebuild there anymore?

How about Tornado prone areas?

Earthquake prone areas?

I have lived in Florida for 22 years and these last 2 years are the first time I have ever had to deal with Hurricanes.

Trust me maybe your paying for the poors unfortunate luck but not mine. I made a $1800 claim 2 years ago and was dropped. My premium was $1500 a year and I paid $15,000 in premiums to my insurance company over 10 years and only claimed $1800 one time.

Now my premium has jumped to $5500 a year and I do not have nor do I feel I need flood insurance. I am pretty high up.

As soon as the insurance companies have to pay out on claim rather than just purely collecting premiums they cry foul.

[Jims5543]

Also, in the history of New Orleans how many times has it been devestated by a hurricane? How old is the city? how many years have insurance companies been collecting premiums without any real claims? Suddenly we have a problem.

[Bamberg96]

I just got the windstorm shaft. Premium was about $900 for the past 5 years, just got the bill yesterday for $3,300 (an extra $200 a month) – I have never had a claim as I take precautions and live in a well built house. I am now left paying the premium for all the crap new construction barrel tile roofs and screened patios and those who plant large trees next to their homes. They get insurance checks for double the damages and pocket the rest. Insurance sucks, once the mortgage is paid I will self insure as I am a low risk.

[Jim Richards]

Originally posted by Jim Cesiro
I have lived in Florida for 22 years and these last 2 years are the first time I have ever had to deal with Hurricanes.

Sorry Jim, but I'm not very sympathetic. I lived in FL for 11 years, literally a few blocks from the Atlantic Ocean. We were very lucky during those years, but we did have to evacuate a handfull of times and had some minor damage that we paid for out-of-pocket. If you knowingly live in a vulnerable area, whether it's an area where you might experience hurricanes, tornadoes, flooding, or whatever, I feel that the rest of us taxpayers shouldn't foot the bill for your insurance. OK, tell you what...maybe the taxpayers should initally cover people living in these high risk areas. But. if you have a loss and want to rebuild in the same area, my opinion is that you should be on your own from that point on.

[Jims5543]

I agree taxpayers should not be responsible when disaster strikes.

Unfortunatly, insurance companies can drop the ball with no consequence.

[Jim Richards]

The FL Gov's office (or was it the FL Ins. Commish) used to go after the insurance companies that would drop the ball on their customers. That was a while ago.

[DaveE]

I live halfway up a mountain in west central PA and because there's a stream 20 ft away from my house I have to pay flood insurance. Water flows downhill and very fast around my house during a heavy downpour. For my house to flood there are around 60,000 people in the valley below that will be in serious trouble, yet I live in a floodplain according to whoever decides these things, and get to pay every year. I guess it's their way of spreading out the pain.

[Flatbutt1]

Originally posted by Jim Cesiro
I agree taxpayers should not be responsible when disaster strikes.

Unfortunatly, insurance companies can drop the ball with no consequence.

So rather than legislating out of the taxpayers pocket, perhaps the law should be aimed at shady insurance practices.

[Tobra]

Seems to me there is a big difference between building in an area that is prone to some type of disaster, earthquake, tornado, whatever, and building in an area that is below sea level within sight of the ocean, perhaps I am just ignorant of some deep, dark, secret; where is fastpat, he will have some conspiracy that relates to this

[gaijindabe]

Originally posted by flatbutt
So rather than legislating out of the taxpayers pocket, perhaps the law should be aimed at shady insurance practices.

Please Good Sir. Explain.

[Jims5543]

Its simple:

Insurance companies cry foul when you need them. They are happy to collect premiums on houses for 100 years as long as they do not have to pay out.

My one house is a perfect example:

My house has been insured in one form or another for 20 years. It has a claim of $1800 for the first time and is dropped. Why?

From my calculations they are still in the win with me. Yet they dropped me because the chances of me making another claim are high. Yet, they had no problem collecting on this house for 20 years.

I learned a valuable lesson through all of this. DO NOT MAKE A CLAIM unless it is truly a disaster. Avoid using your insurance at all costs.

[Jim Richards]

ins = protection racket without the jail time, oh, and sometimes without the protection

[gaijindabe]

Originally posted by Jim Cesiro


Yet they dropped me because the chances of me making another claim are high.

.

Not reason enough?

[Jims5543]

Originally posted by gaijindabe
.

Not reason enough?

You must work in the insurance industry.

So as long as there is no chance of a claim then insurance is o.k.?

Like I said, they had no problem taking my money for the last 20 years, suddenly its a problem.

Brooklyn, huh? I bet your car insurance is 3X what mine is. You should not live there and own a car. Maybe you should not be allowed to get it because the of the high chance of your car being stolen or in an accident. Would that be fair to you?

[turbo6bar]

Originally posted by Jim Cesiro
Brooklyn, huh? I bet your car insurance is 3X what mine is. You should not live there and own a car. Maybe you should not be allowed to get it because the of the high chance of your car being stolen or in an accident. Would that be fair to you?

If the government is going to pay for gai's stolen car, why does he need insurance? It seems to work for the folks in New Orleans.

[artplumber]

Federal flood insurance, in short, is the equivalent of paying heart patients for smoking cigarettes and then also paying for their next triple bypass. Without NFIP, thousands of the homes swept away by Katrina in low lying flood plains would probably have never been built in the first place, while homeowners and local governments would have taken flood-mitigation precautions to reduce property losses.

This hyperbole, pure and simple. The comparison is valid in some sense because although the govt doesn't pay for cigarettes, they do not stop paying for those who continue to smoke to have bypasses or treat lung disease much like they continue to insure these areas.

Of course, that could all change.....but would you want it to?

[gaijindabe]

I take a reasonable position and I must be in the insurance industry?

Technology changes, flood maps change, hurricanes come in 30 year cycles. Insurance companies come and go. The only constant in the world is change.

Insurance companies have had huge losses in South Florida and it is a very competitive industry. Customers in other places are saying - "hey - dont pool us with those folks, let them pay the real cost of living in South Florida" Is this so wrong?

As for Brooklyn, yes it has the highest auto insurance rates in the country (by county, and mostly because of fraud and theft) and I don't expect you to share in the costs either.

[gaijindabe]

Originally posted by turbo6bar
If the government is going to pay for gai's stolen car, why does he need insurance? It seems to work for the folks in New Orleans.

They don't and they won't. That is why I keep a '90 Corolla parked on the street. The P-Car is in a barn 150 miles away...