Insurers report surge of interest in flood policies

Inquiries are many, sales few

expert calls it a `knee-jerk reaction'

September 17, 2005|By M. William Salganik | M. William Salganik,SUN STAFF

The devastation left by Hurricane Katrina is spurring a rush to buy flood insurance - or at least inquiries from property owners checking on what coverage they have.

Allstate Corp. has had 60 percent more applications for flood policies since the storm slammed into the Gulf Coast Aug. 29 than in the comparable period last year, spokesman George Nolan said yesterday.

That apparently is not unusual.

"It invariably happens," said Ed Pasterick, a senior adviser with the National Flood Insurance Program.

"It's too early to know" how many policies have been sold by insurers nationally since Katrina pounded the Gulf Coast, he said. Although they are backed by the NFIP, most flood policies are sold by private insurance companies -about 90 participate in the program - and sales are not immediately reported to the NFIP.

As of the end of July, the most recent data available, 4.6 million NFIP policies were in effect, 4.5 percent more than before last year's busy hurricane season.

Other national insurers didn't have current sales figures available.

Locally, insurance agents and brokers serving waterfront neighborhoods generally reported many calls to inquire about the cost of flood insurance or coverage limits on policies in effect, but few sales.

Melanie Cook, a State Farm agent with an office in Essex, said she got about a dozen calls after Maryland's insurance commissioner, Alfred W. Redmer Jr., appeared on television to remind people that typical homeowner policies don't cover flood damage and that flood policies must be bought separately.

"But none of them purchased," she said, not even the two would-be customers with whom she held face-to-face meetings.

She wasn't alone.

"I quoted prices on four different flood policies since the hurricane, all for less than $320" a year, said John Thibodeau, a State Farm agent in Annapolis. He made no sales.

"People just aren't willing to come up with the extra couple hundred dollars," he said.

Beth Gismondi, an Allstate agent in Ocean City, had better luck with owners of coastal properties.

"I've written eight policies for homeowners that didn't have flood insurance," she said.

She said her call volume was up about 20 percent, "just a lot of calls asking, `How much is my house covered for?'"

Many homes in flood-prone areas have coverage because mortgage lenders require homeowners to buy it.

Pasterick said the NFIP rates risk into three broad categories, based on the area and the construction of the home. Federally regulated lenders are required to demand flood coverage in high- and moderate-risk zones.

About a quarter of NFIP flood policies are held by homeowners in the lowest-risk zones, Pasterick said. But low risk doesn't mean no risk. Homes in that category generate about a quarter of the NFIP's claims.

Some houses in high-risk areas don't have flood coverage because the owners don't have mortgages.

"That's what happened with Isabel," a tropical storm that caused extensive damage in Baltimore and eastern Baltimore County in 2003, said Ed Young, a Nationwide agent in Essex. "A lot of people who didn't have [flood insurance] had already paid their mortgage off."

Young said he didn't see a surge in sales after Isabel and hasn't this year.

Joy Hatchette, Maryland's associate insurance commissioner for consumer education and advocacy, said that in speaking to groups in the past few weeks, she has seen a much greater awareness of the need for flood coverage, separate from homeowner policies.

But many agents said the awareness doesn't necessarily mean homeowners are buying.

"I think people see New Orleans as an exception," said Thibodeau, the Annapolis agent.

Even when sales surge after high-profile flooding, people don't always keep their policies in effect, said Bruce Bender, an Arizona-based flood insurance consultant who is co-chairman of the Flood Insurance Policy Committee of the Association of State Floodplain Managers.

"I can say from past experience that we have seen an increase in purchases when a large event is in the news," Bender said. "It's a knee-jerk reaction: `I've got to check.' But a year later, many of them let it lapse."

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