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Flood insurance is a safety net full of holes

June 2, 2011
Commentary by PETER CROWLEY - Managing Editor ( , Adirondack Daily Enterprise

First floods and then fires wreck local people's property. It's heartbreaking.

The Saranac Lake area community is mourning fire's awful toll on Spencer Boatworks - "Everything about that place was classic," a friend correctly said Sunday - as well as on Doug Martin's house in Paul Smiths, John Roach's home in Vermontville and Stuart Pendleton's apartment in Steve and Linda Hilbert's beautiful old Prescott House.

That's what insurance is for, right? Well, yeah, kind of.

For fires, it's standard for property owners to have insurance, but not for floods. Flood insurance may be affordable elsewhere in the country, but here it's unreasonably expensive. Therefore, almost no one buys it who isn't required to by law.

In our security-loving society, insurance has to be pretty expensive for no one to buy it - and flood insurance is.

The Brownell family owns Gauthier's Saranac Lake Inn and is now stuck with flood damage estimated at $30,000 - up from $20,000 after Lake Flower rose again this weekend. That's a hard pill for a small business to swallow all at once, but Doug Brownell said flood insurance would have cost them more than $10,000 every year. He said he would have paid a lot of money for it, but it made no sense to pay for a 100-year flood in less than three years.

"If it cost two grand, I'd have it," he said. At that price, the Brownells would have paid for that 100-year flood in 15 years - seemingly a better deal for the insurance company than for them - but it's a deal Doug said he would take.

Insurance is basically paying for emergencies whether they happen or not. Like the Brownells, Americans in general have bought into the idea that it's better to pay a lot of money incrementally for something you may never need than to get slammed with a back-breaking bill all at once. Even those of us with plenty of money to pay for sudden repairs do this.

But not for a complete rip-off.

Part of the reason flood insurance is so expensive is that property in designated floodplains (aka Special Flood Hazard Areas) is statistically so likely to flood.

"Structures located in SFHAs have a 26 percent chance of being flooded over the course of a 30-year mortgage," Robert Longley wrote for "Conversely, the likelihood that a building will catch fire over the same 30-year period is about 4 percent. Consequently, a borrower seeking a mortgage on a structure in a SFHA is more likely to experience a flood at that structure than a fire over the life of a 30-year mortgage."

But it's more complicated than that, due to the many twists of the National Flood Insurance Program, formed in 1968 to stop the drain of tax dollars for disaster flood relief. It's overseen by the Federal Emergency Management Agency, and our Adirondack towns and villages are among 20,000 communities nationwide that participate in it, mapping floodplains and working them into local planning. One intention is to pressure municipalities to take flood-prevention steps and limit development in floodplains, but in reality, that often isn't done.

Through the NFIP, the federal government made itself the only legal underwriter of flood insurance. Private insurers sell it but don't back it.

The NFIP is supposed to be funded entirely through premiums, although in reality these aren't enough to support it; its deficits cost taxpayers annually.

The program requires anyone seeking a mortgage to build in a floodplain to buy flood insurance. After all, if no one bought it, the flood repair pool would be dry.

Structures built before the NFIP are grandfathered in and don't need to buy flood insurance.

This dichotomy has proved nasty for both pre- and post-1968 building owners.

Forcing anyone to buy such an expensive service seems unfair on principle, but worse, those required to have flood insurance didn't need it - at least not this time around. So they were forced to overpay for something they don't need - even in a flood as bad as any in recorded local history.

Meanwhile, the cost is so steep that those who did need flood insurance, like the Brownells, couldn't afford to buy it. Now they're likely to file federal disaster relief claims, which may come from taxes - the very scenario the NFIP was set up to stop.

Someone has got to come up with a better system than this. Thankfully, the NFIP is set to expire on Sept. 30 unless Congress extends it. Any extension should come with significant reform, but it might be best to just let this safety net revert to the private sector. As fickle and self-interested as insurance companies are, they might do a better job than FEMA of helping those who want flood insurance get it and helping those who don't save some hard-earned money.



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