This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Sandy Exposes Federal Flood Insurance to Political Pressure

NEW YORK ( TheStreet) -- Although health insurance gets the headlines, it's flood insurance that's driving people crazy, one year after Superstorm Sandy.

The people who want to rebuild face low payouts from the federal insurance pool and huge premium hikes to replenish the same pool. All this could delay the rebuilding process by years.

The risks of floods, and the catastrophic losses from floods, have long forced beachfront property into a special, federal risk pool, the National Flood Insurance Program.

The NFIP's payouts have come under severe criticism since the storm. Many homeowners are saying the payouts are too low to allow rebuilding. They're seeking extensions to the statute of limitations so suits over this can go forward.

What happens after that is the issue, however.

Under the NFIP, the government puts up the capital required to offset possible losses, and the government is getting hosed. Even before Superstorm Sandy, the NFIP fund was $17 billion in the red. Now it's $25 billion in the red, after paying out an estimated $15 billion. (Private insurers paid out even more.)

Most insurers who forced through rate hikes are doing well, our Philip van Doorn reports. Big losses result in rate hikes that come into force during times of small losses and improve loss ratios.

The problem is that the NFIP's rates before Sandy were artificially low, to make them affordable. But this gave people a false sense of security -- the payouts on the policies were also artificially low.

Now, to start making up for Sandy's losses, the rates have to go way up around the country, by as much as 1,000%. And the risk pool has to be brought inland, meaning more people have to pay.

Ceres, an insurance industry group focused on climate change, estimates the storms of 2012 cost every American $300, if the $100 billion lost were spread around evenly. That would include $300 from every man, woman and child, no matter where they live.

But insurance doesn't work that way. Risk is supposed to be spread around to the people who face the risk. Those would be the people in flood zones, flood zones that have just been expanded around the country, including the tri-state area.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs