Flood Insurance Gamble A Poor Bet
Release Date: November 15, 2002
Release Number: 1435-132
» More Information on Louisiana Tropical Storm Isidore
Baton Rouge, LA -- Louisianans took great care to limit legal gambling to a few very specific locations a few years ago.
But every year, hundreds of thousands of residents throughout the state are taking a much more costly bet that they won't be hit by floods.
It's a poor wager that many of them are going to lose according to state and federal recovery officials overseeing recovery operations following the one-two punch of Tropical Storm Isidore and Hurricane Lili.
"If more people knew the real risks and were aware of the real odds we'd have a lot more people signing up for flood insurance," said Federal Coordinating Officer Carlos Mitchell. He said that it was a major goal of the National Flood Insurance Program (NFIP) to simplify legal language and reams of statistics so that the clear benefits of purchasing flood protection coverage could be seen.
State Coordinating Officer Art Jones said that roughly 30 percent of Louisiana's land mass lies in Special Flood Hazard Areas (SFHAs). He said there are slightly more than 500,000 structures located in the SFHAs and that only 233,700 structures were covered by NFIP coverage.
"We're pleased that the message has gotten through to almost half of our residents that need flood insurance the most, Jones said. " But, the job is only half done."
Jones stressed that he understood the cost of purchasing coverage was an important factor in making a decision to buy NFIP protection. "When you have to pay out hard-earned dollars to protect against something that might happen, people have a tendency to downplay the risks," he said. "And that can be very costly."
He explained that data shows people in flood-prone areas are far likelier to experience a flood than a fire. During the life of a 30-year mortgage, the one-percent annual chance flood ("100-year flood") has a 26 percent chance of occurring. This means a home in the mapped flood hazard area is five times more likely to be damaged by flood than to have a major fire. Yet, many people who readily buy fire or homeowners insurance underestimate the much greater risk of floods.
Another major underestimate is the cost of repairing flood damage. In the last fiscal year alone NFIP compensated 8,243 state homeowners and renters more than $89 million for flood damage and loss claims. Officials said that figure was consistent with historical averages and that in the past 25 years more than $1 billion in state claims had been paid.
"It is up to us to communicate the benefits of flood insurance so that people can clearly see why it's a good buy," said Mitchell.
He said that more than 365,000 NFIP policies were currently in force throughout the state comprising total flood coverage of more than $44.5 billion. He added that nearly 10,000 new policyholders signed up for NFIP insurance last year alone.
"The best indicator of success is good word-of-mouth and neighbors are telling neighbors that flood insurance is worth it," Mitchell said. He noted that buildings constructed in compliance with the NFIP standards suffer 77 percent less flood damage than those built prior to local enforcement of these standards.
The NFIP is a self-supporting program. All claims and operating expenses are paid from policyholder premiums, not tax dollars. Furthermore, it is estimated that NFIP building standards prevent $1 billion in nationwide flood losses annually and reduce the burden of disaster relief costs on all taxpayers.
Homeowners and renters can buy NFIP flood insurance through most major private insurance companies and licensed property insurance agents who sell homeowners' or property insurance or call the NFIP's toll-free information line at 800-427-4661 or for individuals with hearing or speech impairments (TTY/TDD) 800-427-5593.
Last Modified: Thursday, 24-Jul-2003 15:11:51