This is the second in a series which began on this blog on Thursday, December 6, 2012. The series continues tomorrow on Insurance Claims and Issues Blog.
The Federal Emergency Management Administration ("FEMA") website tab for everyone coping with the damage which "Hurricane Sandy" left behind, is here.
Partly as a result of the Federal system of Flood Insurance, houses can be and are built in flood-prone areas. A significant portion of these houses are second homes. Moreover, some of the structures insured by Flood Insurance are businesses. See David M. Halbfinger, "Post-Storm Cost May Force Many From Coast Life / Woes for Nonwealthy / Flood Insurance Rates to Go Up as Rebuilding Becomes Stricter" p. A1, col. 1 (New York Times Nat'l ed., Thursday, November 29, 2012). Flood Insurance on business structures is not to be confused with all other types of Insurance, such as Business Interruption Coverage. See Stephanie Clifford, "Retailer Shakes Off the Storm" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Thursday, November 22, 2012). See also John K. DiMugno & Dennis J. Wall, et al, "CATClaims: Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Co.; 2012 Supplements).
The remainder of the houses in flood-prone areas are people's "primary" homes and in many cases, their only homes. Flood Insurance "as we know it" embodies a public policy to financially support the building, and inevitable rebuilding, of houses and business structures in such areas. See, in addition, Justin Gillis and Felicity Barringer, "As Coasts Rebuild and U.S. Pays, Repeatedly, the Critics Ask Why" (New York Times Online, posted November 18, 2012).
This public policy is being questioned in public forums in particular in the wake of Sandy, the latest storm to leave damage large enough to capture the public consciousness. See, e.g., Erwann Michel-Kerjan and Howard Kunreuther, "Paying for Future Catastrophes" p. 7, col. 1 (New York Times Nat'l ed., "Sunday Review" Section, November 25, 2012); Halbfinger, New York Times, November 29, 2012, supra. This examination has been coming for awhile, although inevitably large natural catastrophes occasion greater public scrutiny of public policy. See generally Howard Kunreuther and Erwann Michel-Kerjan, "At War With The Weather," and their website at http://www.atwarwiththeweather.com/.
Flood Insurance Premium increases of as much as 20% to 25% are already on the horizon "under legislation enacted in July to shore up the debt-ridden National Flood Insurance Program." Halbfinger, New York Times, November 29, 2012, supra. Here is a link to the current version of the National Flood Insurance Program in 42 United States Code.
These changes reflect an already changing public policy in this area. "Premiums [under Flood Insurance Policies] will double for new policyholders and many old ones within three or four years under the new law." Halbfinger, New York Times, November 29, 2012, supra. Under Public Law 112-123, which amended the National Flood Insurance Program codified in Title 42 of the United States Code effective July 31, 2012, there will no longer be available a lowered Flood Insurance Premium for second homes or vacation homes. Businesses, too, will reportedly no longer receive a lowered Premium rate for Flood Insurance. Halbfinger, New York Times, November 29, 2012, supra.
Flood Insurance may not be the biggest factor in changing public policy away from encouraging construction in flood-prone areas. Fewer than 30% of the homes in some of the areas devastated by Sandy had Flood Insurance. Halbfinger, New York Times, November 29, 2012, supra.
Next: Alternatives to providing incentives to build and rebuild in areas subject to flooding.
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