Homeowners And Flood Claims

Homeowners in Grand Prairie, Arlington, Dallas, Fort Worth, Burleson, Coppell, De Soto, North Richland Hills, Keller, Colleyville, and other North Texas cities don’t spend a lot of time worrying about floods, with maybe a few exceptions. However, residents along the Texas Gulf Coast have to think about it all the time. But North Texas residents need to appreciate that the floods along the Gulf Coast also effect them in an indirect way.
An article recently published in the Houston Chronicle brings this issue to light. The article was published on August 9, 2010, and was authored by Spencer Gaffney, who works out of the Washington Bureau. The article’s title is “Insurance From Floods Underwater.”
The article tells us that between 1977 and 1995, the National Flood Insurance Program paid out $806,851 for repeated storm damage to a suburban Houston home that was valued at $114,489. Guess what? The math does not add up.
Gaffney tells us that the federal government’s program to protect coastal residents from nature’s devastation has coughed up more than $8 billion over the past 15 years for more than 150,000 troubled properties that have filed multiple claims for storm damage.
That’s just one problem for a program that was designed to be an essential economic safety net to hundreds of thousands of coastal residents but has come under attack for the way it manages its money and fulfills its mission. Critics say the program, rather than acting as a safety net against catastrophic damage from hurricanes, has become a taxpayer funded subsidy to coastal home owners and real estate interests to build and buy homes in high risk areas.
Here are some interesting numbers. 1% of properties account for between 25 and 30 percent of the claims it pays. The number of “repetitive loss” homes more than doubled in the past 15 years. What’s more is that the devastation wrought by Hurricanes Katrina and Rita in 2005 has left the program deeply in debt with little or no hope of stemming the tide of this debt.
The National Flood Insurance Program is lossing more than $200 million a year and now owes the Department of Treasury more than $18 billion. The Government Accountability Office says the program is unlikely to be paid back.
This is of interest to Texas because Texas receives more money from the flood insurance program than any other state. Before the program was instituted in 1968, people living along the coasts or in high risk areas had no access to insurance. When a flood hit, they paid out of pocket or got disaster aid from the state or federal government.
Now, the National Flood Insurance Program supports entire industries, including the banks that sell mortgages to homes with flood insurance, the construction workers who repair and rebuild the homes, the insurers who write the policies, and the real estate agents who sell the lucrative waterfront properties.
The policies themselves are written by independent insurance agencies like Allstate with government approval. They get to keep up to 17% of the premium.
“You’re doing the same work, you’re getting paid the same, but you don’t have the risk,” said Mark Calabria, director of financial regulation studies at the libertarian Cato Institute. “The flood insurance program allows people to live where they wouldn’t live otherwise.”
The article goes on. Austin Perez, environmental policy representative for the National Association of Realtors, says “its not true” that the program encourages rebuilding in sensitive areas. Instead, he says, it allows residents to live in at-risk coastal areas with some degree of confidence they will not be financially ruined.
Perez points out that if there were no flood insurance that taxpayers woud pick up the bill in the form of disaster relief.
Craig Fulgate, an administrator of the Federal Emergency Management Agency, which oversees the program, has said the program needs to be reformed.
The program has to be reauthorized by Congress periodically. One result of the repeated reauthorization process is a steady flow of campaign cash from real estate interests to lawmakers who decide the program’s fate. All house members who co-sponsored the bill to continue the program recently, received campaign contributions from the National Association of Realtors totaling $49,000.