Flood premiums cause some to take storm-season risk

July 15, 2010
Author: The Orlando Sentinel, Fla., Mary Shanklin

At a time when U.S. emergency-preparedness managers are pushing Floridians to sign up for flood coverage, the National Flood Insurance Program has been in flux.

Already this year the program has lapsed three times, making it difficult for property owners to get coverage and for lenders to approve mortgages for houses in flood-prone areas. Federal lawmakers just temporarily reauthorized the program again, but only until Sept. 30.

“The hurricane season runs two months beyond the new Sept. 30 expiration date,” noted Jimi Grande, vice president of political affairs for the National Association of Mutual Insurance Companies. “Congress must not let the program lapse again, but that’s just the minimum.”

Insurers would like to see a long-term commitment to the federal program.

In addition to lapses in the program, hundreds of thousands of Florida homeowners have dropped their flood-insurance policies – probably because of continuing economic hard times in a state with record foreclosures.

Also complicating matters: The federal government has redrawn its flood-plain maps, as it does about once a decade. So Florida homeowners who did not need flood insurance in the past have been getting phone calls from their mortgage companies in recent months, demanding that they get coverage or show proof they don’t need it.

North America’s hurricane-prone pinky finger has been drawing the attention recently of the Federal Emergency Management Agency, which has been encouraging Floridians to check http://www.floodsmart.gov to determine whether changes in the flood-plain maps affect them. Officials cite contrasting statistics such as this: The average flood-insurance claim in Florida during the past five years totaled more than $48,000, while the average cost of a policy is currently about $560 a year.

“This extension [of the program] is good news for families and business owners across Florida, especially with hurricane season now under way,” said Rachel Racusen, FEMA’s press secretary.

She noted that Congress not only extended the program but also made it retroactive. So Floridians who applied for new or renewal policies during the May 31-July 1 lapse still got coverage when they applied. Existing policies were never affected, Racusen noted.

This high-level push for homeowners to purchase flood insurance comes at a time when many Floridians are unable to afford the extra expense. Mortgage companies usually alert their customers that they need insurance if they live in areas mapped for flooding – but with more than 20,000 Florida homes in some stage of foreclosure, flood insurance is not always a priority.

The number of dropped policies constitutes less than 2 percent of all the flood-insurance policyholders across the state, according to FEMA, but that still means more than 1.5 million property owners have let their policies lapse during the past two years.

“We’re hearing a lot of buzz about people not wanting to buy the insurance,” said Ed Pasterick, a senior policy adviser for FEMA’s risk-insurance areas. “The reason they’re complaining is that they’re getting notices from their lenders that they need coverage.”

If homeowners don’t obtain their own coverage or hire an engineer to determine whether they need it, lenders will initiate a “forced-place policy.” Pasterick said such policies can be 10 times more expensive than the policies secured directly by homeowners.

Thousands of homeowners in Orange County alone have probably gotten flood-insurance notices from lenders in recent months, because FEMA last year redrew its flood-zone maps for the first time since 2000.

In Orange County, for instance, about 8,000 to 10,000 houses that had been in flood-prone areas were dropped from flood-plain designations. But about 2,000 properties were added to those zones, county officials said. The county said it notified homeowners whose addresses were added to flood zones in the newly drawn federal maps.

Another note of caution for Floridians contemplating getting flood coverage six weeks into the six-month hurricane season: Those policies may not take effect for at least a month.