Push is on to expand federal flood insurance

THE HEAVY RAINS,  gusting winds and floods brought by the April 15-16 nor'easter offered a powerful reminder of Rhode Island's vulnerability just as insurers are seeking higher premiums or denying coverage to some homeowners and residents. Above, Rhodes-on-the-Pawtuxet is flooded by the river for which it is named.
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THE HEAVY RAINS, gusting winds and floods brought by the April 15-16 nor'easter offered a powerful reminder of Rhode Island's vulnerability just as insurers are seeking higher premiums or denying coverage to some homeowners and residents. Above, Rhodes-on-the-Pawtuxet is flooded by the river for which it is named. /

With his party now controlling Congress, Rep. Barney Frank, D-Mass., has joined forces with a Republican colleague to try again to reform the struggling National Flood Insurance Program, which remains $20 billion in the red after hurricanes Katrina and Rita and is widely considered to be underfunded.
Frank, who chairs the House Financial Services Committee, and U.S. Rep. Judy Biggert, R-Ill., the ranking minority member on the subcommittee on Housing and Community Development, proposed legislation last month that would raise the NFIP’s borrowing authority to $21.5 billion from the current $20.8 billion to ensure it can cover the remaining claims from the 2005 season.
The Flood Insurance Reform and Modernization Act goes further, however, expanding the coverage the NFIP provides to homeowners and businesses while ensuring that the premiums they pay are high enough to offset the potential cost of losses.
Currently, the maximum coverage for homeowners is $250,000, and for businesses and churches it’s $500,000. Under the new plan, the maximum coverage limit would be bumped up to $335,000 for homeowners, and for businesses it would be $670,000.
The proposal also would require the Federal Emergency Management Agency to disclose the financial status of the NFIP to Congress as well as conduct a review of the nation’s flood maps, and it would allow annual premium increases of up to 15 percent, versus the current 10-percent cap.
Additionally, the bill would phase out subsidies for second homes and vacation homes, which is expected to significantly increase the premiums they must pay for coverage. The phaseout would be done in 15-percent increments starting in January 2011. Frank’s staff said they did not know what share of the properties covered by the NFIP are second or vacation homes.
The measure, which has bipartisan support in the House, is similar to legislation that was approved by the House last year. A far broader measure introduced in the Senate, however, which would have wiped away the NFIP’s debts but also allowed annual premium hikes of up to 25 percent on properties that had suffered repeated losses, did not gain passage due to strong opposition from the two senators from Louisiana.
Frank said there will be a hearing for the bill in May, and he expects it to pass the House before July 4. But he said that while he believes the bill also has good prospects in the Senate, it’s unclear whether it can get through the Senate in time for this year’s hurricane season.
The measure’s strength, Frank said, is that it is economically and environmentally forward-thinking. “It’s rare that you get a bill that’s enthusiastically supported by both environmental groups and anti-spending groups. This bill is,” he said.
The National Flood Insurance Program was created in 1968 and is administered by FEMA. It covers homeowners, renters and business owners in 20,000 communities throughout the United States that could not obtain insurance from private agencies.
David White, vice president of Butler & Messier Insurance in Pawtucket, said that as it’s currently set up, the coverage from the NFIP is “grossly inadequate,” because the limits don’t reflect today’s construction costs. He added that the reform bill should tie the coverage limits to some kind of price index, so the program can be adjusted on an annual basis.
Although White said private insurers do a better job at handling flood insurance than the federal program, fewer and fewer companies will insure homeowners and businesses in flood zones, and if someone is in a high-risk zone, especially right on the water, the only organization that will provide insurance is FEMA.
White said one of the best aspects of Frank’s measure is that it also would include business-interruption insurance, which White said is advantageous because it was previously excluded from FEMA’s flood coverage.
“The No. 1 one most important matter here is to increase the limits that you can purchase through FEMA. But then this add-on for the business interruption for businesses is very attractive,” he said.
White said business interruption insurance, which covers a company that has to shut down due to an accident or disaster, is important to any business. Some businesses may be able to relocate, but others cannot simply pick up and start over in another place.
“A hotel can’t just go open up around the corner the next day, so they’re going to incur a loss of business income while they rebuild,” White said.
One thing the legislation does not address, but that some believe is important, is that not all who could benefit from the NFIP are aware of their options.
Pam Pogue, floodplain manager at the R.I. Emergency Management Agency, said Rhode Island is very vulnerable to flooding, but many people are not insured.
In the latest nor’easter in Rhode Island, Pogue said, one woman in Coventry had water gushing through the floor of her home. When Pogue asked her if she had flood insurance, the woman told her no, because she was told by an insurance company that she could not obtain the coverage.
In reality, Pogue said, the only homeowners who cannot have flood insurance are those who live on boats.

Additional information on the National Flood Insurance Program is available at www.fema.gov.

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