Friday, September 25, 2009

Flood Insurance Facts

Flood Insurance

Flood Insurance

True or False?

Flood Insurance is a form of federal aid.

False. The National Flood Insurance Program is premium funded and has been operating in the black for years. It has the authority to borrow up to 1.5 billion dollars from the U.S. Treasury, however, all such funds much be repaid with interest.

Flood Insurance in not intended to restore a property to it's pre-loss condition.

False. NFIP trains its agents as recently as July 2004 that a covered loss will be restored to it's pre-loss condition, less the deductible.

The National Flood Insurance Program is a government run program.

True. The National Flood Insurance Program is a program administered by FEMA. It is a cooperative effort between most of the largest homeowners insurance companies in the country and the Federal Government. Federal regulations call for the private insurance companies, or third party administrators, to receive premium dollars, and take nearly 1/3 off the top. The private companies pass the remainder onto the NFIP. In the event of a loss, the private insurance companies are provided an additional 3% of the loss for their efforts.

At this time the underwriting risk rests solely with the Federal Government.

All NFIP Officials and personnel are federal employees.

False. The NFIP was privatized nearly twenty years ago. Computer Sciences Corporation (NYSE:CSC) handles most of the day to day aspects of the program. When a person appears at your door wearing a blue FEMA jacket, ask them for their business card. Most victims report that no such cards are ever handled out. In fact, many victims had the experience where the FEMA adjuster told them they were with the Federal Government. Technically that's true. They are a government contractor. Its similar to being stopped by a state trooper and you noticed in fine print on his shirt "Haliburton". Both are government contractors, and depending on the contract language they are often deemed agents of the U.S. Government.

Coverage questions are left up to the Federal Government.

False. Collectively the private insurance companies reap more than 600 million dollars in profits from NFIP policyholders. Federal regulations call for the insurance companies to make adjustments in accordance with their standard policies.

Private insurers must meet several criteria in order to participate with the NFIP. One is they must have been writing homeowners insurance for a minimum of five years prior to participating in the program. In those five years the insurance company has established procedures for paying its claims. Title 44 § 62.23 l states, "WYO Companies will adjust claims in accordance with general Company standards, guided by NFIP Claims manuals".