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March 24, 2019

S t o r y   b y   T O M  S H E A N
T h e  V i r g i n i a n - P i l ot

Hurricane Katrina's devastation in Louisiana and Mississippi triggered an outpouring of charitable contributions and government aid.

It also set off a debate over who should pay for billions of dollars of uninsured flood damage: Property owners? Property-and-casualty insurers? The federal government?

Before the full cost of Katrina's damage is tallied, there will likely to be debates over this and related topics, such as whether the rates for flood insurance should be raised and whether more property owners in flood-prone areas should be required to have coverage.

In Hampton Roads, Katrina has prompted more homeowners to ask about the need for flood insurance. Jim Talbot, deputy director of emergency preparedness for the city of Norfolk, said he has fielded several inquiries in recent weeks and responded with the same message.

"I recommend it to all property owners" because of the region's vulnerability to storm surges and heavy flooding, he said. "Even if you live in a zone where it isn't required, it's still worth getting."

It isn't just homeowners who tend to ignore or dismiss the risk of heavy losses from flooding. A lot of small businesses in the region are not adequately informed about the risks, Talbot said.

Charles S. Nusbaum said he, too, has gotten calls from home and business owners asking about flood insurance. The president of S.L. Nusbaum Insurance Agency Inc. in Norfolk said he has one simple suggestion: Buy it.

"More than ever, people need to evaluate their exposure" to flood damage, Nusbaum said. However, in too many cases, "people aren't ready for that extra expense."

Despite the promotion of flood insurance by emergency-preparedness officials and insurance agents, its use in Hampton Roads has been modest, and any upturn in the number of buyers may be temporary. Immediately after a major flood, the number of property owners who purchase coverage jumps sharply and then falls back to previous levels within two years, said Joseph Annotti, a vice president of the Property Casualty Insurers Association of America, a trade group.

"People have very short-term memories when it comes to catastrophes," he said.

As with rates for other types of insurance, those for flood coverage are determined by the prospect for future losses, not by the need to cover past losses.

Actuaries for the Federal Emergency Management Agency's National Flood Insurance Program had taken into account the possibility of a storm as powerful as Katrina when setting flood-insurance rates, said Edward Pasterick, senior flood adviser at FEMA. The agency, he said, has no plans to raise its rates for flood coverage.

However, the prospect of a new cycle of more powerful tropical storms "could have some bearing down the road" on rates, Pasterick said.

Annotti of the Property Casualty Insurers Association played down the prospect of higher rates in the wake of Katrina. What's more likely, he said, are requirements that more homeowners and property owners in flood-prone areas have flood insurance. And that, he said, will require more accurate maps of areas vulnerable to flooding.

To protect their collateral, most mortgage lenders require borrowers to have flood coverage for the amount of a federally backed mortgage on their homes. Once the loan is paid off, the requirement ends.

In Hampton Roads, the annual cost of flood insurance for a home ranges from a few hundred dollars to thousands of dollars, depending on the home's location, its age, elevation and type of construction. Along with its standard policy for homes in flood zones, the National Flood Insurance Program offers less expensive versions with the same level of coverage for homes outside the flood zones.

When deciding whether a borrower must have the insurance, lenders rely on maps that define the landscape by gradations of flood risk. A "V" zone, for example, is an area vulnerable to coastal flooding and storm waves. An "A" zone is subject to flooding from a river or other inland sources. In both types, owners of buildings with mortgages are required to have flood insurance.

Most lenders don't require coverage for homes and buildings in zones designated less vulnerable, including "B," "C" and "X" zones.

Flood maps are prepared by contractors working on behalf of FEMA. They are available for reference in municipal offices and can be purchased from FEMA.

In addition to checking for their home's location on a flood map, homeowners should check for its vulnerability to storm surges from the coast and bay, Talbot and other emergency-preparedness officials said. Some Hampton Roads cities, including Virginia Beach, Portsmouth and Suffolk, have posted maps on their Web sites depicting the effects of hurricane-related surges and the extent of potential flooding.

After Hurricane Isabel struck the region in September 2003, Suffolk's Division of Emergency Management began providing a list of street addresses, whether they were in a flood zone and the likelihood of flooding. Before assembling that information, "I got calls from residents who asked, 'I live on such-and-such a street. Is my house going to flood?'" said James T. Judkins, the city's emergency management coordinator.

The National Flood Insurance Program is funded by policy premiums , not tax dollars, and has the ability to borrow from the Treasury Department to meet its obligations. Its policies, however, are sold by private agents and companies that sell regular homeowner's insurance. In Virginia, the roster of companies administering flood policies includes several major insurers, including Allstate, Nationwide, Hartford, State Farm and USAA. These agents and insurers are compensated by FEMA for selling and administering its flood policies.

For a home, the maximum amount of coverage available from a National Flood Insurance Program policy is $250,000. In contrast to a homeowner's policy, coverage for the contents of a home requires a separate policy. The maximum coverage available from a contents policy is $100,000.

One chronic source of confusion for some home owners is the distinction between a homeowner's insurance policy and a flood policy. A homeowner's policy doesn't cover flood damage, something that propertyand-casualty insurers routinely point out.

However, determining what's covered by a flood policy can be a challenge, even for a sophisticated shopper. The coverage for flood damage to a basement, for instance, doesn't cover finished walls, floors, furniture or personal belongings. It's crucial to understand the details, said Judkins, Suffolk's emergency management coordinator.

"Don't be embarrassed to ask questions," he said. "It never hurts to ask what you're getting for your money."

Buying flood insurance is only part of the equation. Another key element is knowing how to file a claim and deal with adjusters. In southeastern Virginia and northeastern North Carolina, thousands of policyholders went through costly, sometimes traumatic, experiences two years ago while trying to resolve claims for damage inflicted by Isabel. Some of their experiences were described during congressional hearings earlier this year on FEMA's handling of Isabel-related flood claims.

Pasterick of FEMA blamed some of those claims-related problems on what he described as policyholders' inflated expectations and misunderstanding of flood policies.

For a policyholder who files a claim, documentation of the flood damage is crucial. That's partly because the distinction between damage from windborn rain and flood damage can be hard to discern after a severe storm. To streamline the claims process and strengthen one's case, home owners should photograph their home and belongings before a storm, Talbot of the city of Norfolk advised.

"If you're there when the water is rising, take pictures of it," and when you return, take more pictures before touching anything, he said.

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