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Homeland
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Risk Management, Insurance and Communication
chicagotribune.com
Despite the risk, few buy insurance against floods
By David Greising and Becky Yerak
Tribune correspondents
June 20, 2008
CEDAR RAPIDS, Iowa — Floodwaters that raged through Cedar Rapids tore the sunroom off the back of Joseph and Dawn Zamastil's two-story house, engulfed the first floor and turned the basement into a pool of fetid standing water.
In an odd way, though, Dawn Zamastil feels almost lucky. After the record Midwestern floods of 1993 left their Czech Village neighborhood untouched, the Zamastils had tried—unsuccessfully—to stop buying flood insurance. But the bank that held the mortgage to their home had other ideas.
"We said, '93, we got no water. But the bank said no, we were in the flood plain, so we still needed it," said Dawn Zamastil.
Did they ever. The Zamastils now stand to collect on the $115,000 flood insurance policy on their home of nearly 30 years.
Fortunate minority
The Zamastils are in the minority. Nationwide, only 17 percent of people carry any flood insurance on their home. And in Cedar Rapids, less than 20 percent of the 35,000 homeowners evacuated due to the record floods are believed to have insurance—even though all but a handful lived in a federally mandated flood zone.
Surviving a flood is challenging enough. As flood victims begin dealing with the aftermath, from cleanup to rebuilding, many now are wading through the complexities of financial recovery that can be as perplexing, confusing, arbitrary and even unpredictable as the floodwaters themselves.
People who own their homes outright often do without flood insurance. Banks can be lax in enforcing requirements that homes in flood plains be protected by flood insurance. Even those who do buy flood insurance often are shocked to find their policies do not cover the loss of many household items.
Businesses owners, meanwhile, often find their insurance agents steer them away from flood policies because of the expense.
For many property owners, living without flood insurance is a calculated risk.
"In '93, we held the water back, and that was a 500-year flood, so we figured we didn't need flood insurance," said Ben Creelman, an Army operations engineer. But when the levee protecting Oakville, Iowa, burst, it flooded Creelman's uninsured home.
"You roll the dice, and sometimes you lose," he said.
Companies such as Allstate and State Farm Insurance Co. sell flood policies, but the federal government actually shoulders the financial risk of most flood insurance. In part, that's because floods can be such unexpected and catastrophic events.
Flood-related crop losses—which in Iowa alone could hit nearly $3 billion this year—are covered under a federal program run by the Agriculture Department.
Federal disaster relief, such as that ordered by President George W. Bush, typically covers such out-of-pocket costs as cleanup and temporary housing, but rarely replaces lost property. The government also provides low-interest loans.
The lack of coverage can be seen in the way State Farm's customers in Illinois have begun making claims arising from the wet weather so far this year. Of 4,745 weather-related Illinois claims since Memorial Day, only 62 arise from flood insurance policies, State Farm said.
States push insurers
Some states have begun pushing insurers to be more aggressive in advising customers about their exposure to flood damage. A new law in Minnesota requires insurers each year to remind policyholders without flood insurance that they have a legal right to purchase it.
Monte McCunniff, a State Farm agent in Cedar Falls, Iowa, said he understands the calculations made by some 100 of his clients who chose to do without flood insurance. Coverage for $120,000 in home and property costs around $1,000 a year in flood-vulnerable parts of town.
"That's twice as much as they're paying for home insurance," McCunniff said.
For business owners, the risk calculation can push them even more directly toward taking a pass.
Standing in the parking lot of Lueck Label Manufacturing just a few blocks from the Cedar River, Dale Lueck watched as a Bobcat scooped up debris, including railroad ties that had crashed through the corrugated metal wall of the Cedar Rapids plant.
The business manager for Lueck Label had consulted the company's insurance agent last January, after the Federal Emergency Management Agency sent a letter stating that the print shop sat in a 500-year flood plain. The agent's advice, according to Lueck's wife, Rebecca, the plant owner: Do without the insurance, which would have cost around $2,000 a year.
Greising reported from Iowa and Yerak from Chicago.
dgreising@tribune.com
byerak@tribune.com
NYTimes.com
April 9, 2008
National Briefing | South
Court Sides With Insurers on Flood Damage in Louisiana
By THE ASSOCIATED PRESS
An insurance company is not obligated to pay for water damage from the failure of New Orleans area levees after Hurricane Katrina, Louisiana’s highest court ruled in a case that could affect thousands of homeowners. In a major victory for insurers, the Louisiana Supreme Court reversed a state appeals court decision that favored a New Orleans property owner, Joseph Sher, in his suit against the Lafayette Insurance Company. In November, the Fourth Circuit Court of Appeal concluded that Lafayette’s homeowner policy failed to exclude all forms of flooding because its language was ambiguous. But the State Supreme Court disagreed, and said Lafayette was entitled to limit its liability for damage from a levee breach. John W. Houghtaling, a lawyer who represented the state when the Fourth Circuit heard the case, said the ruling had “very troubling” implications for the Louisiana insurance market and dealt a blow to thousands of homeowners devastated by the August 2005 hurricane. Lafayette and other insurers say their policies cover damage from wind but not flooding, including water from a levee breach.
In aftermath of Calif. fires, rethinking policy
Population hike at odds with fire protection fight
By Kirk Johnson and Jesse McKinley, New York Times News Service | October 28, 2007
SAN DIEGO - As Californians sift through the cinders of last week's deadly wildfires, there is a growing consensus that the state's war against such disasters - as it is currently being fought - cannot be won.
"California has lost 1.5 million acres in the last four years," said Richard A. Minnich, a professor of earth sciences who teaches fire ecology at the University of California, Riverside. "When do we declare the policy a failure?"
Fire-management specialists like Minnich, who has compared fire histories in San Diego County and Baja California in Mexico, say the message is clear: Mexico has smaller fires that burn out naturally, regularly clearing out combustible underbrush and causing relatively little destruction because the cycle is still natural. California has giant fires because its longtime policies of fire suppression - in which the government has kept fires from their normal cycle - have created huge pockets of fuel that erupt into conflagrations that must be fought.
"We're on all year round," said Brett Chapman, a firefighter with the US Forest Service who worked 15-hour shifts last week in the Lake Arrowhead area east of Los Angeles.
The main problem is that many in California are ruggedly obstinate about the choice they have made to live with the constant threat of fire. Even state officials who are interested in change concede that it could take a decade - and more catastrophic wildfires - before it happens.
"If you're going to live in paradise," said Randall Holloman, a bar and restaurant owner in Cedar Glen, which is in an area that has burned twice in four years, "you're going to have to deal."
In San Diego County, which has borne the brunt of the recent fires, three out of four homes built since 1990 are in the dangerous zone where open spaces and housing meet. These are the most vulnerable and exposed places in fire season because wildfires start in national forests, recreation areas, and other publicly owned lands.
About half of the land in San Diego County is publicly owned, much of it in the Cleveland National Forest.
Had last week's fires burned in the same locations in 1980, about 61,000 homes would have been within a mile of a fire. By 2000, the number would have grown to 106,000 homes, and this year it was 125,000, according to an analysis by the University of Wisconsin.
The long-term battle is one that fire specialists suggest cannot be won, even with the better building codes and evacuation plans that have become a staple of government here and across much of the West.
As the events of last week illustrate - at least 480,000 acres burned, 1,575 residences destroyed and seven people killed - the cycle roars on with higher stakes, greater risk, and the grim certainty that it will happen again.
The California state fire marshal, Kate Dargan, said discussions had begun at the highest levels of government on some of the toughest proposals: curtailing population growth on the wildland margins or a sweeping overhaul of how the public lands are managed for fire danger. But decisions are perhaps five to 10 years away because of the enormity and complexity of the task.
"In the meantime," Dargan said, "we'll have more people living out there, and if averages hold, we'll have two more catastrophic incidents like this before the decisions get made."
Many Californians say they want the best of both worlds - life in the danger zone and more fire protection - and are frustrated that they do not have it.
"I'm angry that we are in the same boat," said Camie Pretzinger, who lost her Cedar Glen home to fire in 2003 and defied an evacuation order there last week.
"Every time there's a disaster," Pretzinger said, "they have to reinvent the wheel."
State and local governments are locked in an increasingly difficult battle with Mother Nature.
In the aftermath of the last big fires, in 2003, a range of state and local ordinances were passed in hopes of disrupting the cycle. |
Federal Coordinator for Gulf Coast Rebuilding Hosts Forum for Leaders of Insurance Industry
Release Date: September 19, 2007
For Immediate Release
Office of the Federal Coordinator for Gulf Coast Rebuilding
Contact: 202-572-8878
Donald E. Powell, the president’s top official for Gulf Coast rebuilding, today briefed executives of the nation’s leading property insurers on progress that has been made in the Gulf Coast region. Representatives from nine major national property insurance companies participated in the meeting held in Washington, D.C.
“Today’s meeting continues the dialog we began last year with the insurance industry to provide solid examples of rebuilding progress in the Gulf Coast region,” stated Powell. “We understand the market realities the insurance industry faces in this region, but their involvement is critical to rebuilding. These discussions better inform private insurers of the vast and continuing safety improvements of the Gulf Coast since the storms of 2005 that are critical to an industry based on risk.”
The purpose of today’s meeting was to share information on improvements to hurricane protection systems and update the industry on the status of rebuilding in the Gulf Coast. A detailed briefing by the U.S. Army Corps of Engineers on the Interagency Performance Evaluation Task Force’s (IPET) Risk and Reliability Report was provided, with a description of IPET’s risk assessment model which characterizes current and future annual flood risk in the area. The web site, http://nolarisk.usace.army.mil, enables business and homeowners in the New Orleans area to make risk-informed decisions based on their business or home addresses.
“The IPET web site is a great tool property owners can use as they consider whether or not to rebuild,” Powell said. “But at the same time we want to drive home the fact that it’s good business to rebuild and reinvest in the Gulf Coast region.”
For the last twenty-two months, the Office of the Federal Coordinator for Gulf Coast Rebuilding has been engaged in facilitating and streamlining various components of the recovery effort, providing key federal support and resources to local leaders, and reinforcing the federal government’s commitment to the people of the Gulf Coast.
www.dhs.gov/gulfcoastrebuild
Terrorism risk insurance bill faces budget obstacles
By Bill Swindell CongressDaily September 10, 2007
House Financial Services Chairman Barney Frank, D-Mass., said he believes he will be able to work around pay/go problems snagging a bill to reauthorize the federal government's terrorism risk insurance program.
Frank suffered a setback last week when the Congressional Budget Office ruled that the bill, which would reauthorize and expand the program for 15 years, would cost the federal government $3.7 billion over a five-period period and $10.4 billion over a 10-year period. Facing the budget scoring, House leaders pulled the bill that was slated for the floor Tuesday because it carried no offsets.
Frank said he is exploring attaching language to the bill that will state that no funds would be spent until after an attack. If an attack occurred, Congress would then have to vote again to release the money. "It would be... 'nothing will be spent if this happens.' Then there will have to be another vote to release the funds, which I'm sure would come," Frank said.
Frank said he would have preferred to have secured a waiver of budget rules, but Democratic House leadership has not granted one this year in the face of anticipated GOP criticism. Minority Whip Roy Blunt, R-Mo., raised the issue during a colloquy with Majority Leader Steny Hoyer, D-Md., Friday. Hoyer told Blunt that leadership would put the bill on the floor next week after working through the pay/go issue.
"Clearly, there is no payout if a terror attack doesn't happen. There is a contingency that would have to happen ...We're trying to address that," Hoyer said. Frank said he was bewildered by the CBO estimate because, he argued, if an attack occurred, it probably would cost more than $10 billion, possibly as much as $200 billion.
"I don't know how they get a $10 billion terrorist attack ... It's letting the process take over the substance," he said, referring to the CBO estimate as "Sanskrit."
CBO in its estimate noted that "there is no reliable way to predict how much insured damage terrorists might cause in any specific year." But it added the estimate reflects the weighted average based on the opinion of many experts, with outcomes that ranged from no attack to a catastrophic one.
The agency said the cost could be considered in a similar vein as the amount of insurance premium needed to offset the government's cost for providing the program. Under the program, insurers pay no premium for federal assistance.
Frank said he planned to make minor technical changes to the bill in a manager's amendment but no substantive changes.
The bill would require insurance companies to make available coverage for a nuclear, biological, chemical or radiological attack, a provision bitterly opposed by smaller carriers. They hope to strike the provision in the forthcoming Senate TRIA bill. That language is strongly supported by the real estate industry and some large insurers, who argue it is essential to have such coverage because the private market cannot underwrite such risks.
Council's Report Connects Competitiveness, Security
By Heather Greenfield
National Journal
Since the 2001 terrorist attacks, the Council on Competitiveness has trumpeted the concept that security is an issue that affects U.S. competitiveness in the global market. It has encouraged policymakers to consider not just physical protection but also how to protect the U.S. economy by getting critical infrastructures running after disasters.
The council drove the point home Monday in a new economic report on integrating competitiveness and security. The report said the ability to "bounce back from disruption will be a competitive differentiator for companies and countries alike in the 21st century."
The report mentioned recent disasters, including the August 2003 power blackout in New York that cost more than $6 billion.
During a seminar where the report was released, business executives also talked about the increasing costs of cyber attacks and data breaches.
Thomas O'Neill, the principal at Sandler O'Neill, said his financial services firm was at nearly the top of the second tower of the World Trade Center and lost one-third of its employees during the 2001 attacks. He said many precautions taken after the 1993 attempt at blowing up the same building, including backing up all computer data, helped his firm continue operations days later.
O'Neill said his company was able to bounce back from that attack, but a data-security breach could put it out of business. He said his company constantly monitors for that and has a group that tries to break into its computers to get information.
Susan Bailey, vice president of global network operations planning at AT&T, said her company processes 10 quadrillion bytes of data every business day. With that amount of data, she said, "it's hard to imagine what threat AT&T doesn't worry about in some shape or form."
Bailey advised other businesses to focus not just on asset protection but functional resilience so they can continue to operate during and right after disasters.
The report looked at five years of analysis by private risk-management companies and the impact of new homeland security policies on business. It noted that with most of the infrastructure controlled by the private sector, industry must help craft a disaster-response strategy rather than have it imposed by government.
But the report does ask the federal government to play a role, too. It recommends that the government ask to see company resilience plans as part of the criteria for federal contacts. The report also asks the government to create regional "collaborative centers" outside the Washington Beltway to share information and intelligence in emergencies.
Some business executives questioned whether to make changes that could cost money or make an operation less efficient based on things that might happen. Others asked whether resilience is just the latest buzzword for common sense.
Dupont CEO Charles Holliday said his company often does invest in planning for events that never happen, but the exercises build fundamental skills that would help in a real disaster.
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