Gov and insurance: paying out $800K on $114K property

[theinvisibleheart]

Under NFIP(National Flood Insurance Program), everybody pays a flat rate independent of risk and past history. In one example cited below(source included), a property with a market value of around $114K received over $800K in compensation via repeated filing when flooding took place.

Why does this happen?

Basically, the home owner in flood prone area had ZERO incentive to build anywhere else no matter how many times his home got flooded because his home will always be made whole (to pre-flood condition) with no increase in rate.

The owner in flood prone area was always paying the same rate as somebody who lived in low risk area. This is the case of a homeowner who lived by the river paying the same rate for flood insurance protection as a homeowner who lived in the middle of desert.

If a private insurance firm behaved like the government did with NFIP, they would go bankrupt.


THE NATIONAL FLOOD INSURANCE PROGRAM: REVIEW AND REAUTHORIZATION

Tuesday, April 1, 2003
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, D.C.

one of the most egregious examples among a great many examples of abuse of the NFIP was a home in Houston, Texas which was valued at $114,480, yet it received $806,591 in flood insurance payments over the last 18 years. These property owners did not do anything wrong. They just exploited the current situation that is there in our flood insurance program.

Federal Flood Insurance: The Repetitive Loss Problem by Rawle O. King



Policy Issuance and Claims Adjusting
CRS Report for Congress
Federal Flood Insurance: The Repetitive Loss Problem
Rawle O. King, Analyst In Industry Economics, Government and Finance Division

Originally Posted by Rawle O. King

Unlike the practice in private insurance markets, the NFIP accepts all insurance applicants and is not selective in evaluating individual applicants for flood insurance coverage.

There is no individual risk analysis to determine the likelihood of a future loss, and individual property loss experience is not used as a rating criterion.

The sole criterion for accepting an applicant is that the insured property is located in a community that participates in the NFIP. The Standard Flood Insurance Policy (SFIP) is issued for all insured properties.

[Ledbetter]

There are reasonable people who make a strong argument that the only flood aid that should be given for property loss is to buy the property for fair market value and let the owner relocate to a safe place.

Repeated payouts to people in dangerous areas with no incentive to leave are a waste of our tax money.