Oct 23
Flood Insurance Sales Jump as the Program Goes Broke
Sales of federal flood insurance rose sharply across the country last year after homeowners witnessed the devastation wrought by Hurricane Katrina and realized that typical insurance policies didn’t cover many victims’ losses. From November 2005 to November of last year, the number of federal policies jumped more than 13 percent, far more than normal, according FEMA. 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 new policies will provide a badly needed injection of cash 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 subsidized by taxpayers because premiums don’t factor in the real risks of damage.
The program was self-financed for decades until the storms of 2005 wrecked its finances. It expects to be about $20 billion in debt to the Treasury once all claims are paid. It takes in $2 billion a year in premiums, but more than a third of that goes to debt payments.
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