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U.S. program maps out flood coverage

- The Washington Times - Wednesday, May 10, 2006

If your home is flooded, don't look to your homeowner's insurance policy for coverage. Although your insurance company might be one of the 200 companies nationwide that write and service flood insurance policies for the government, the actual insurance itself is available only through the federal government's flood insurance program.

Congress created the program in 1968 in response to the rising cost of taxpayer-funded disaster relief. Property owners who buy, build or improve structures in areas prone to flooding are required to purchase flood insurance from the National Flood Insurance Program (NFIP) of the Federal Emergency Management Agency (FEMA).

"Only 44 percent of the homes that should have flood insurance do have flood insurance," says Butch Kinerney, NFIP spokesman.

Premiums vary depending on the potential for flooding in an area. The average premium paid by homeowners in a high-risk area is $1,500 a year for $100,000 of coverage, according to the Insurance Information Institute.

The amounts homeowners pay for flood insurance are subsidized by the government and "don't reflect the premiums they are paying in terms of the risks associated with where they're living," says Andrew Gray, spokesman for the U.S. Senate Banking Committee.

Only about a quarter of the homes in areas most vulnerable are insured against flood loss, the Federal Insurance Administration reports.

If you live or rent a home or business in a low- or moderate-risk area, you may qualify for the Preferred Risk Policy -- a lower-cost flood insurance policy -- that provides coverage for your home's contents for as little as $39 per year and building-plus-contents coverage for $121 a year.

FEMA has created nationwide flood maps to designate possible flood zones and calculate insurance premiums.

If you live in a community in a flood zone, you are eligible for flood insurance.

FEMA reports that Maryland and the District of Columbia have 407 communities participating in the NFIP. There are 272 participating communities in Fairfax, Arlington, Prince William and Loudoun counties in Virginia.

To find out if your neighborhood is included on a federal flood map, check with a local office of the state department of taxation or the building permits office. This information is also available at the FEMA Web site (www.fema.gov).

Ninety percent of national disasters in the country involve flooding, the Insurance Information Institute reports. The industry group says 25 to 30 percent of flood insurance claims during the past five years were in areas classified as lower risks.

FEMA reports that structures in high-risk flood areas have a 26 percent chance of suffering flood damage during a 30-year mortgage. The same homes have a 9 percent chance of loss from fire.

Property owners with land included on a federal flood map must carry replacement coverage. Any lending institution that is regulated by the federal government must require flood insurance in a flood-hazard area in order to finance a property.

"You can have a home in a high-risk flood zone and not have to insure it," Mr. Kinerney says, "but only if you pay cash for the property, pay off your mortgage, or inherit the property."

Homeowners who live within 100 miles of a flood zone can also buy the insurance. Federal officials say they have received thousands of inquiries about the insurance since Hurricane Katrina devastated the Gulf coast.

The National Flood Insurance Program has an arrangement with private insurance companies to sell and service flood insurance policies. State Farm, Allstate, Mutual of Omaha and Travelers are some of the companies that write such policies nationally.

As a homeowner, you can insure your home up to $250,000 and its contents up to $100,000. Policies do not include garages or sheds.

As a nonresidential property owner, you can insure your building and its contents up to $500,000.

Many private insurance companies offer Excess Flood Protection policies that provide higher limits to coverage than the NFIP, in the event of catastrophic loss by flooding.

A policy does not go into effect until after a 30-day waiting period. Policies are available in three forms: "Dwelling" (most homes); "General Property" (apartments); and "Residential Condominium Building Association Policy" (condominiums).

All have limited coverage.

Federal disaster assistance offers loans to help cover flood damage, not compensation for losses. Even then, such loans are available only if the president formally declares a disaster. Fewer than 10 percent of all weather emergencies in the United States are declared.

If you live in a high-risk area and have received disaster assistance from the Small Business Administration after a flood, you are required to purchase and maintain flood insurance coverage until the loan on your property is paid off.

If you don't get flood insurance and another flood damages your property, you will be denied federal disaster assistance. If you sell your property, you are required to notify the buyer of the need to purchase and maintain flood insurance.

Floods are the most common and widespread of all the natural disasters in the United States. You don't need to live on the water to experience flood damage.

Floods can develop during several hours to several days. A flash flood can take only a few minutes to develop. A prolonged rainfall over several days can cause a river or stream to overflow and flood the surrounding area. A broken dam or levee, after rainfall of 1 inch per hour, can cause flash flooding that will reach its peak in a few minutes.

In 2002, FEMA was granted $150 million to update U.S. flood maps. Many of the maps had not been updated since 1978.

"We hope to have the new flood maps completed by 2008-2009," Mr. Kinerney says. "Because of the regulatory process that allows for public comment it might take until 2010 for the new maps to become nationally adopted."

Federal officials expect many of the flood boundaries and the risk factors for properties within them to change, given booming shoreline development in the past decade.

If your home sits between the mainland and ocean waters, you might not be eligible for federally subsidized insurance. Under the Coastal Barrier Act, the government limits its liability by excluding property ownership in ecological areas that are designed to protect wildlife -- areas such as the Delaware and the Carolina shores. The government discourages development in these places by withholding subsidized insurance.

A recent FEMA study reports that almost 87,000 homes and buildings have been built on land likely to wash away during the next 60 years.

Some insurance companies are willing to accept higher risks and take on policies in some of the developed barrier areas. Instead of $340 in premiums offered through the government program, though, private companies will charge about $3,000 a year for flood coverage worth slightly less than $200,000.

"The average subsidized property pays premiums now of about $700 per year," Donald Marron, acting director of the Congressional Budget Office, told a Senate committee reviewing flood insurance concerns.

"And if we charged them actuarially fair rates, that number would be closer to $1,800," Mr. Marron says. "The program is designed to lose money."

Congress is in the process of debating changes, including jacking up the premium as much as 15 percent a year until the National Flood Insurance Program is on more solid ground.

An ounce of prevention by a homeowner in a flood zone is worth up to $1,000. Homeowners can receive up to a $1,000 reimbursement for damage-preventing expenses. Such things as renting storage space to protect your belongings, buying sandbags and lumber to make a barricade, and renting pumps are all things that qualify for reimbursement. No deductible is applied to this coverage.