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Without Insurance, Nobody Rebuilds

 

 

After Hurricane Katrina devastated the Gulf Coast in 2005, many homeowners discovered that getting insurance money to rebuild depended on the type of damage their homes sustained.  Although private insurance companies sell both wind and flood insurance, they only pay for wind damages.  The federal government, through the National Flood Insurance Program, or NFIP,  pays for flood insurance.

After Katrina, the NFIP fell $18 billion  in debt.  How did this happen?  Critics say it’s because the flood insurance program is poorly designed and badly run by the Federal Emergency Management Agency,  FEMA. Some even accuse private insurers of bilking the government – writing off wind damage as flood damage so the NFIP would have to pay the bill. Explore this site, and decide what you think.

 


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Some Background

 

Insurance companies were typically risk averse after Katrina.  But historically there are precedents for enlightened action from the industry.

 

After the Great New York Fire of 1835 destroyed the headquarters of several major companies, the industry championed the creation of the city's first municipal water supply.  Their reasoning: It would be cheaper to create the infrastructure for water to fight fires than to continue to pay claims resulting from the destruction.


And in San Franciso in 1906, after an earthquake flattened the city and fire burned what remained, Lloyd's of London ordered its American agents to pay all claims in full "irrespective of the terms of their policies."  At least a hundred insurance companies had written some 90,000 policies prior to that disaster.  While a plurality resisted paying claims, the 1906 disaster is remembered primarily as a time when the industry met the need even when doing so conflicted with their stockholders' interests.

Sources:  NYC Fire Museum


"A Crack in the Edge of the World:  America and the Great California Earthquake of 1906," by Simon Winchester.  Harper-Collins, 2005.

 

 

 

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New Orleans resident Herbert Gettridge describes his experience with two insurance companies.  None of the Gettridge family homes are involved in the insurance bilking allegations.  Most of their homes were underinsured, meaning that while they bought flood insurance as their mortgage companies required, the value of their homes rose – but not the value of the insurance.

 

 

 






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Comments (3)Add Comment
0
Mich
February 05, 2009
66.114.65.17
...

Insurance problems still happening.

0
Mich
February 05, 2009
66.114.65.17
...

Insurance issues plague me.

0
homeboy
February 05, 2009
70.156.92.143
...

why are they happening

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DEFINITIONS

 

NFIP - The National Flood Insurance Program.  The federal program that guarantees homeowners are covered for flood losses.


FEMA - The Federal Emergency Management Agency.  Administers the NFIP.


WYO - Write Your Own insurance:  FEMA's name for outsourced flood insurance policies. FEMA contracts with existing insurance companies to sell, adjust, and settle flood claims.