A presidential commission has recommended improved marketing efforts for flood insurance, including a stronger push by the states.

States must play an active role in improving market penetration for flood insurance by working with communities and lenders and by assisting in education efforts, said the Interagency Floodplain Management Review Committee in a report issued July 14.

The current dependence on the mandatory purchase requirement to drive high levels of market penetration may be unrealistic, it said.

A key part of increasing the use of flood insurance is decreasing the size of governmental disaster payments, the committee said. Generous disaster assistance creates negative incentives for the purchase of flood insurance, the panel said. The government and the insurance industry must ensure that the public is fully aware of the advantages of flood insurance and the limitations of disaster assistance.

Public and private sectors should work together to ensure that disaster benefit payments do not approach or exceed flood insurance benefits, the report said. Floodplain occupants must be aware that disaster assistance is only available during a presidentially declared disaster while flood insurance claims are paid any time a general condition of flooding occurs.

The commission noted lender compliance to the requirement for mandatory flood insurance has been receiving a considerable amount of attention during hearings on pending legislation. It acknowledged lenders should do more to make sure flood insurance is purchased at closing and that it is maintained over the life of the loan.

The committee said it supported provisions in proposed reform legislation that would set penalties for lenders who do not require flood insurance, but it noted other reasons account for the relatively low level of market penetration for coverage.

The most striking characteristic about the floodplain sections of communities visited by the review committee is that they appear to be predominantly low-income areas, whose populations have higher than usual percentages of renters, elderly, public assistance recipients and property owners without mortgages, the panel said.

In these small rural communities, sales occur less frequently, often as cash sales or as sales financed through land contracts, loans from lenders who are not federally regulated or insured, or loans from family members. These are the areas where the mandatory purchase requirement would be applied least often and where voluntary purchase of flood insurance is least likely, it said.

The committee cited several other factors for the weak market penetration including the false sense of security due to levees, particularly agricultural levees along the main stems of the Mississippi and Missouri rivers, the reluctance of insurance agents to market flood insurance in communities with few potential buyers and a low level of awareness of the risk to those on the fringes of the floodplain.

In fact, however, the committee also conceded there is little in the way of hard data on the extent of market penetration. It cited estimates that 20% to 30% of insurable buildings in identified floodplains are covered and that estimates in the Midwest at the time of the flood ranged from below 10% to more than 20%

None of these estimates are authoritative, since no nationwide inventory of flood prone structures exists, the committee said. Based on its own research, the panel said it believes market penetration rates range from 5% to 50%. It said the lowest rate, below 10%, is likely the norm in small rural communities, while medium to large communities have rates of 20% to 30%.

For a few large communities with middle-income floodplain populations and a high degree of flood hazard a-wareness among community officials, lenders and property owners, market penetration can exceed 30% and in one instance, 50%, the committee said.

The committee said states could do more to expand flood coverage by working with communities and lenders and by assisting in education efforts. It also said the amount of federal assistance for floodplain management should be tied to a states willingness to undertake this effort.

RELATED ARTICLE: Steps Urged To Boost National Flood Program

These are the recommendations of the Interagency Floodplain Management Review Committee for improving the National Flood Insurance Program:

*Take vigorous steps to improve the marketing of flood insurance, enforce lender compliance rules and seek state support of insurance marketing;

*Reduce the amount of post-disaster support to those who were eligible to buy insurance but did not to that level needed to provide for immediate health, safety and welfare; provide a safety net for low- income flood victims who were unable to afford flood insurance;

*Reduce repetitive loss outlays by adding a surcharge to flood insurance policies following each claim under a policy, providing for mitigation insurance riders and supporting other mitigation activities;

*Require those behind levees that provide protection against less than the standard project flood discharge to purchase actuarially based insurance;

*Increase the waiting period for activation of flood insurance policies from five to 15 days to avoid purchases when flooding is imminent;

*Leverage technology to improve the timeliness, coverage and accuracy of flood insurance maps; support map development by levies on the policy base and from appropriated funds because the general taxpayer benefits from this program; and

*Provide for the purchase of mitigation insurance to cover the cost of elevating, demolishing or relocating substantially damaged buildings.

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