Tropical Storm Lee's lasting impact: Flood insurance, confusing to ...

When many new homeowners come to Warren Stumpf?s office, they?re not excited to talk about flood insurance.
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Most of the time, flood insurance isn?t their idea. It?s just the thing the bank makes them buy, said Stumpf, an agent with Capital Region Insurance Agency.
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He will walk them through their policy ? it?s the same government National Flood Insurance policy sold by any other agent in the region ? but not everyone pays attention to the details.
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Then when a disaster strikes, like Tropical Storm Lee, they get surprised.
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?They thought it was like their homeowners? policy,? Stumpf said. ?It?s not.?
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That has only added to what has been a frustrating year for many people who saw their homes damaged or destroyed last September. And, as part of a deal to extend the flood insurance program that went into law in July, premiums will be going up.
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First, some homeowners were bothered by their response time. Confusion about the nature of the program only exacerbated their anger. Private insurance agents sell the policies, but the federal government administers them.
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?It?s been a slow process because the claims adjusters hired by the federal government were inundated with claims,? Stumpf said.
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Then there?s the fine print. Policyholder after policyholder, Stumpf said, seem surprised to learn flood insurance policies don?t pay the replacement cost for destroyed possessions. Instead, they pay for the actual cash value, after factoring in depreciation.
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Replacement cost means the insurance company buys you a new TV to replace your three-year-old flatscreen. Actual cash value less depreciation means they?ll give you what you would have gotten if you tried to sell that three-year-old flatscreen. The dollar difference only gets wider with each big-ticket item covered by the policy.
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The costs for policyholders are only going to increase.
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In July, the National Flood Insurance Program was extended for five years. As part of that deal, Congress overhauled the program that was $18 billion in debt, largely due to damages from Hurricane Katrina.
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?What Congress did ... was agree that the National Flood Insurance Program had to be run in a more actuarially sound way,? said Mike Barry of the Insurance Information Institute.
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As a general rule, the only people who carry flood insurance live in flood prone areas. Since the risk pool is not significantly spread out, the government had been subsidizing premiums to make them affordable for property owners.
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Now, the government is making property owners kick in a larger share.
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Premiums in the midstate for both commercial and residential property are up about 10 percent so far, Stumpf said. The average policyholder in this area pays just less than $800 a year for flood insurance, according to FEMA.
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Under the terms of the extension, premiums could rise up to 20 percent per year.
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The government is also offering incentives ? such as a lower premium hike ? if homeowners agree to pay a larger deductible or increase their amount of coverage.
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The overhaul also limited some elements of the program that proved costly to the government in the past, such as covering vacation homes and paying to rebuild homes that are substantially damaged repeatedly.
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The higher premiums could be another thing working against homeowners who, after dealing with Lee, just want to sell their house and move out of the floodplain.
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Agents saw a huge demand for flood insurance right after Lee. According to FEMA, there are 870 more policy holders in Cumberland, Dauphin, Lebanon, Perry and York counties than there were last year.
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But, Stumpf said, interest has largely tapered off.
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Even though more than 1.1 million people live in the five-county region, only 7,386 homes have flood insurance, according to FEMA. Most people who don?t live in a high-risk area don?t bother with flood insurance.
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If they could, Stumpf said, many homeowners inside the floodplain would live with the risk of not having flood insurance.
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?I don?t think a lot of people would purchase it if not for the bank forcing it as part of the loan,? Stumpf said.

This story is part of a week-long series from The Patriot-News looking at the aftermath of Tropical Storm Lee, the ongoing recovery, and lessons to be learned. To read the entire series, click here.?

Source: http://www.pennlive.com/midstate/index.ssf/2012/09/tropical_storm_lees_lasting_im.html

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