Soon after heavy rains swelled the creek behind their Austell home and filled its lower floor with 7 feet of water in 2009, Keimon Hill and his girlfriend moved back in and replaced what they could.
Eventually, so did most of their neighbors.
“We lost a lot of memorable stuff, stuff we can’t get back,” said Hill, 33. They didn’t have flood insurance to cover roughly $40,000 of damages, but got $20,000 in federal disaster aid.
To avoid future losses, they bought flood insurance, for about $1,000 a year.
“We got it right after the flood,” said Hill. “The way things are going, you never know.”
But such floods — and their consequences — are getting all too predictable. There’s been a rising tide of flood damage in recent years, say experts, which has helped to sink the nation’s flood insurance program in red ink.
Most affected homeowners and businesses don’t have flood insurance and suffer heavy losses, either because they underestimated the risk or mistakenly thought their regular home insurance covered floods.
That’s the dismal situation many of the nation’s property owners face this year — more than 80 years after the private insurance industry largely stopped offering flood insurance, and 43 years after the federal government stepped in and created the National Flood Insurance Program.
Federal officials say it’s still too early to tally the total damages from floods so far this year. Such disasters range from record springtime high water along the Missouri and Mississippi rivers, to Hurricane Irene and Tropical Storm Lee, which recently caused at least 40 deaths and widespread flooding in the northeast.
Not counting insurance claims that the federal government’s program will eventually pay, those and other disasters this year are expected to cost taxpayers at least $6.7 billion to provide federal emergency assistance.
But even before this year’s above-average surge of storms and water, the nation’s approach to preventing floods and compensating for damages was foundering. Government officials say the National Flood Insurance Program, created in 1968, likely won’t be able to repay the billions of dollars it borrowed from the Treasury Department to cover damages after Hurricane Katrina hit in 2005. As of the end of August, the program was $17.75 billion in debt.
Experts say the federal program is in trouble for several reasons:
-- Only a small fraction of people — mostly those facing the greatest risk from flooding — buy flood insurance, undermining the primary way that insurers pool money from large numbers of customers to spread risk among a large population. The NFIP has 5.6 million policies in place — less than 5 percent of the nation’s households.
-- Floods are becoming more costly as storms have intensified in recent decades and more people have built more structures in or near flood zones. More than half the nation’s population and half its productive capacity are now located in coastal and floodplain areas, according to the Congressional Research Service. Several studies also have found that flood- and storm-related disasters have worsened in recent decades, even after accounting for inflation, growing populations and increased construction in flood zones.
-- The NFIP is shouldering far greater financial risks than it is charging homeowners and business for, partly because it has failed to update many of its flood zone maps and to enforce rules aimed at curbing risky development in flood-prone areas. Critics say the cut-rate premiums encourage people to repeatedly rebuild flood-damaged homes and build new ones in hazardous areas with taxpayers’ support.
The insurance program’s worsening financial condition has prompted Congress to try to fix it ahead of a Sept. 30 funding deadline. A bill approved by the House of Representatives in July requires the federal insurance program to charge rates that match its real costs and to improve its flood zone maps. A different version is pending in the Senate.
But some critics say the proposed reforms are only a stopgap. The flood insurance program won’t be viable until flood insurance is included in all homeowners’ policies, and private insurance companies shoulder more of the risk, said Birny Birnbaum, a former insurance regulator who is now executive director of the Center for Economic Justice in Austin, Texas.
“The only real long-term solution is to make flood a private-sector peril,” said Birnbaum. “Right now, everybody’s paying for flood insurance, but they’re paying for it through their taxes.”
Birnbaum said the current system is inefficient and costly. With multiple sets of insurance covering some homes, the government and other insurers now often argue over whether hurricane damage was caused by floods, which would cost the NFIP, or wind, the other insurers’ responsibility.
“Companies have dumped risks whenever some big event cost too much,” said Birnbaum. “The industry socializes the risk while privatizing the profit to themselves. ... So what you end up with is a really absurd system.”
Insurers counter that they typically don’t offer flood insurance because the risk of floods is different than most risks.
“It’s a difficult peril to underwrite for,” said Chris Hackett, director of personal lines policy for the Property Casualty Insurers Association of America. He said he hasn’t “seen much interest” among private firms in entering the flood insurance market.
Such insurers are leery of the market because only customers in the most flood-prone areas are likely to buy insurance, making it too risky and costly for companies to offer.
Also, unlike relatively random hazards such as house fires, floods — the nation’s most costly disasters — often hit large sections of cities, states and coastlines at one time. That could swamp insurers with more claims than they have money to pay.
Private companies bail out
A few countries, including the United Kingdom, Spain and Japan, have taken the approach advocated by Birnbaum. According to the Insurance Information Institute, a trade group, insurers in those nations bundle flood coverage as a standard part of insurance policies, thus spreading the costs among many more customers.
Insurers once took a similar approach in the United States. But private insurance companies generally stopped offering flood insurance coverage after the Great Mississippi River Flood of 1927, according to the American Institutes for Research, which did a chronology of events leading to the creation of the National Flood Insurance Program. The 1927 flood killed up to 500 people and inundated almost 13 million acres — an area equal to about a third of Georgia.
Decades would pass before the federal government stepped in to plug the gap.
Government efforts in the 1950s to launch flood insurance programs stalled amid industry opposition. But by the mid-1960s, the mounting costs of federal disaster assistance after several major hurricanes led to the creation of the current program. Its architects hoped it would reduce the cost of disaster assistance by generating premiums and pushing development out of harm’s way.
Under the 1968 law, the federal government offered subsidized flood insurance to homeowners and businesses if their communities agreed to control development in recognized flood zones. The government also mapped flood zones nationwide. Homeowners in areas expected to flood at least every 100 years were required to have the insurance, but anyone else could buy it as well.
Jump forward 43 years, and things aren’t working as well as they looked on paper then.
A 2009 report by the nonpartisan Congressional Research Service noted that, because of lax enforcement, fewer than half of properties in the flood zones were insured. Many other areas outside official flood zones had a high risk of flooding, resulting in large uninsured losses and the need for federal disaster aid.
The researchers said the NFIP needs to do a better job of working with communities to control development in flood areas, updating its maps and telling the public about flood risks. Unrealistically low insurance rates also may be encouraging too much development in flood-prone areas, they said.
Those rates eventually could go much higher, if lawmakers’ efforts to make the NFIP financially sound are enacted. The Property Casualty Insurers Association of America, a trade group, recently estimated that the NFIP’s average premiums cover only half the true cost, and that premiums would need to triple in high-risk flood zones.
In Austell, those official flood zones are expected to expand by about 8 percent as a result of the NFIP’s first flood map update since 2008. The Austell maps are part of a general update of flood maps for seven metro Atlanta counties — Cobb, Coweta, DeKalb, Douglas, Forsyth, Fulton and Gwinnett — that are being released for public comment this month. Still preliminary now, they are expected to take effect a year from now.
The earlier maps placed Hill’s home outside the flood zone, but a check of his address on the NFIP’s website (www.floodsmart.gov) now places his home in a “high risk” area.
Like Hill, perhaps a hundred of the victims of Austell’s 2009 flood now have flood insurance, said Duane Demeritt, the city’s floodplain administrator. Only a handful had it before the 2009 flood, he said.
But that leaves hundreds of other formerly flooded homes that are still not covered at a time when each big flood seems to be a bit worse, he said.
“A lot of people still say they don’t need it,” said Demeritt.
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Rising tide of flood damage
The National Flood Insurance Program’s finances haven’t recovered since damage payments to Hurricane Katrina victims swamped its premium income in 2005. Lawmakers are trying to reform the government insurance program to make it more viable.
Year | Premiums collected | Damages paid
2000 | $1.7 billion | $252 million
2001| $1.7 billion | $1.3 billion
2002| $1.8 billion | $434 million
2003 | $1.9 billion | $781 million
2004 | $2 billion | $2.2 billion
2005 | $2.2 billion | $17.7 billion
2006 | $2.6 billion | $641 million
2007 | $2.9 billion | $612 million
2008|$3 billion|$3.5 billion
2009|$3.2 billion|$773 million
2010 | $3.4 billion | $728 million
Source: Federal Emergency Management Agency
Most expensive floods
Six of the 10 most costly floods since 1978, in terms of insured damages paid by the National Flood Insurance Program, have occurred since 2001. The figures don’t include uninsured damages.
Event | Date | Damages paid
Hurricane Katrina | 2005 | $16.2 billion
Hurricane Ike | 2008 | $2.6 billion
Hurricane Ivan | 2004 | $1.6 billion
Tropical Storm Allison | 2001 | $1.1 billion
Louisiana flood | 1995 | $585 million
Hurricane Isabel | 2003 | $493 million
Hurricane Rita | 2005 | $471 million
Hurricane Floyd | 1999 | $462 million
Hurricane Opal | 1995 | $406 million
Hurricane Hugo | 1989 | $376 million
Source: Federal Emergency Management Agency
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