THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, August 27, 1995 TAG: 9508260368
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 154 lines
As it bore down on the Virginia coast two weeks ago, Hurricane Felix churned up a wave of inquiries from Hampton Roads homeowners.
Some called their insurance agents wanting to know if their policies included coverage for flood damage. Others wanted to know if they could buy flood policies.
But by then, it was too late to buy protection from whatever damage Felix might have inflicted.
It's not too late to investigate flood-insurance coverage for future storms. Here is a primer on how the insurance works:
Before Felix veered away from the coast, ``I answered at least 20 calls a day'' from policyholders asking if they were covered for flood damage, said Larry Akers, a State Farm agent in Virginia Beach.
``Some people got very upset that they couldn't get it,'' he said.
At the office of Hilb, Rogal and Hamilton Co. of Tidewater in Virginia Beach, ``we had a lot of calls. . . but nobody was able to help them,'' said agent Jim Kitchin.
Akers, Kitchin and other agents had to explain to callers that flood policies have a 30-day waiting period before they take effect.
But homeowner interest in flood insurance waned as Felix lost its force. From the scores of inquiries that his office received while Felix approached the coast, ``we will get one or two new flood policies,'' Akers predicted.
Many homeowners assume that protection against flood damage is a routine part of their regular policies.
But property-and-casualty insurers, wary of suffering crippling losses from natural disasters, have excluded flood coverage from their policies. For homeowners, the only source of this insurance is the federal government's National Flood Insurance Program.
The Federal Emergency Management Agency, which oversees the flood-insurance program, relies on private insurance agents and insurance companies to sell and service the policies.
Nationwide, the number of policies has climbed almost 42 percent during the past decade to 2.94 million. However, the number of homes in special flood-hazard areas that are insured against flood damage is only 21 percent of the number eligible, according to the Federal Emergency Management Agency.
As Hurricane Felix made its way toward Hampton Roads, insurance agents weren't the only ones fielding inquiries. The city of Norfolk's zoning office received about 800 telephone calls from residents asking about flood zones and flood insurance, said Fred Brusso, zoning enforcement coordinator.
In Norfolk, there are about 5,100 flood policies in force, but that covers only a fraction of the homes eligible, said Brusso, who has been active in efforts to broaden public awareness of the potential for flood damage.
In recent years, the number of policies in force in Norfolk has fluctuated between 4,800 and 5,200 policies, he said.
Individuals who borrow to buy a home in a flood-prone area are required by mortgage lenders to purchase flood insurance. But insurance agents say it can be difficult to persuade others to buy the coverage.
``When I handle a homeowner's policy, I always tell them that flood coverage is excluded,'' said Akers, the State Farm agent. ``When I recommend that they have it, they ask, `How much does it cost?' and then say, `Can I get it later?' ''
Local agents estimate that the typical flood-insurance premium for a homeowner in the region is between $200 to $500 a year.
Many who do buy the insurance eventually let their coverage lapse. If they have suffered no flood damage, some homeowners figure they can tolerate the risk of flood damage and decide to use the insurance premium for some other purpose.
The government's flood-insurance program dates back to 1968, when Congress sought to make the insurance affordable to potential flood victims and encourage tougher building codes in flood-prone areas. The availability of government-subsidized insurance was justified as a way to reduce the cost of federal disaster aid after future floods.
Although some flood policies are still federally subsidized, the program relies on premiums for policyholders to cover expenses and pay claims for flood damage, said Mark Stevens, a spokesman for the Federal Emergency Management Agency.
``This is not a drain on the Treasury or on taxpayers,'' he said.
But the likelihood of heavy losses this year from floods in Texas, California and Louisiana prompted the insurance program to tap its line of credit at the Treasury Department a few weeks ago.
``We've projected $600 million of claims from the latest Louisiana floods, and we've borrowed $194 million'' from the Treasury, Stevens said. That borrowing, he said, will be repaid with interest from policyholders' premiums.
Still, the insurance program has found itself under constant attack. Some environmental groups have contended that the availability of flood insurance has prompted the development of coastal areas that would not have occurred otherwise.
Other critics have argued that taxpayers might eventually bear the cost of insurance claims if several catastrophes inflict widespread flood damage.
Congress responded to concerns about the program's financial health last year by passing the National Flood Insurance Reform Act. One part of the legislation increased the amount of coverage available for a single-family home to $250,000 from $185,000. The maximum coverage for damage to personal belongings was raised from $60,000 to $100,000.
Another part of the 1994 act put greater responsibility on mortgage lenders. Lenders must notify borrowers when their homes have been included in a special flood-hazard area.
If a homeowner fails to buy the necessary amount of insurance or to fails to keep the policy in force, the lender must buy the coverage.
The act also lengthened the waiting period for a flood policy from five days to 30 days. There is no waiting period if a borrower buys the coverage as part of a closing on the purchase of a home.
The measure also provided additional funds for cities and states to reduce the vulnerability of flood-prone areas to future damage.
The rates for federal flood insurance are set by the government based on such factors as the age and construction of a house and the terrain that surrounds it. One critical factor in the formula is a home's location on the flood-zone maps prepared for the Federal Emergency Management Agency and used by insurance agents.
In South Hampton Roads, the designations of flood zones are based partly on the flooding that followed the hurricanes of 1933 and 1944 and the Ash Wednesday storm of 1962.
Because the only source of flood insurance for homeowners is the federal government, homeowners won't benefit from shopping around for coverage. For those seeking the insurance, it's probably best to use the same agent who provided your homeowner's policy, said Brusso, the Norfolk zoning coordinator.
A policyholder who suffers flood damage may have to deal with two or three claims adjusters after the event, but the adjusters' reports will be more consistent if they are working for the same insurer, Brusso said.
When lining up coverage, a policyholder may be able to save money by providing a certificate of elevation, a document proving that the first enclosed floor of a home is a certain height above mean sea level.
``It lowered my premium from $367 to $93,'' said Brusso, who owns a 64-year-old house near the water in Portsmouth. ILLUSTRATION: Color photo
CHRISTOPHER REDDICK/Staff
Fred Brusso, zoning enforcement coordinator for the city of Norfolk,
has tried to broaden public awareness of the potential for flood
damage.
FILE PHOTO
An early morning storm flooded the 900 block of Hanson Street in
Norfolk in 1992.
Graphic
JOHN EARLE/Staff
NATIONAL FLOOD INSURANCE PROGRAM
SOURCE: Federal Emergency Management Agency
[For complete graphic, please see microfilm]
Map
AREAS PRONE TO FLOODING
by CNB