Flood insurance denotes the specific insurance In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured or policyholder is the person or coverage against property loss from flooding A flood is an overflow of an expanse of water that submerges land. The EU Floods directive defines a flood as a temporary covering by water of land not normally covered by water. In the sense of "flowing water", the word may also be applied to the inflow of the tide. Flooding may result from the volume of water within a body of water,. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands In physical geography, a lowland is any broad expanse of land with a general low level. The term is thus applied to the landward portion of the upward slope from oceanic depths to continental highlands, to a region of depression in the interior of a mountainous region, to a plain of denudation, or to any region in contrast to a highland. The and floodplains A floodplain, or flood plain, is flat or nearly flat land adjacent to a stream or river that experiences occasional or periodic flooding. It includes the floodway, which consists of the stream channel and adjacent areas that carry flood flows, and the flood fringe, which are areas covered by the flood, but which do not experience a strong current that are susceptible to flooding.

Contents

Hidden Floods

Nationwide, only 20% of American homes at risk for floods are covered by flood insurance. Private insurers are unable to insure against the peril of flood due to the prevalence of adverse selection Adverse selection, anti-selection, or negative selection is a term used in economics, insurance, statistics, and risk management. It refers to a market process in which "bad" results occur when buyers and sellers have asymmetric information : the "bad" products or customers are more likely to be selected. A bank that sets one, which is the purchase of insurance by persons most affected by the specific peril of flood. In traditional insurance, insurers use the economic law of large numbers to charge a relatively small fee to large numbers of people in order to pay the claims of the small numbers of claimants who have suffered a loss. Unfortunately, in flood insurance, the numbers of claimants is larger than the available number of persons interested in protecting their property from the peril, which means that insurers are unable to cover their costs in flood insurance.

In certain flood-prone areas, the Federal Government requires flood insurance to secure mortgage loans backed by federal agencies such as the FHA and VA. However, the program has never worked as insurance, because of adverse selection. It has never priced people out of living in very risky areas by charging an appropriate premium, instead, too few places are included in the must-insure category, and premiums are artificially low." [1] The lack of flood insurance can be detrimental to many homeowners who may discover only after the damage has been done that their standard insurance policies do not cover flooding.

Flooding is defined by the National Flood Insurance Program as a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or two or more properties (at least one of which is your property) from: Overflow of inland waters, unusual and rapid accumulation or runoff of surface waters from ANY SOURCE, and mudflows.[2]

This can be brought on by landslides, a hurricane A tropical cyclone is a storm system characterized by a large low-pressure center and numerous thunderstorms that produce strong winds and heavy rain. Tropical cyclones feed on heat released when moist air rises, resulting in condensation of water vapor contained in the moist air. They are fueled by a different heat mechanism than other cyclonic, earthquakes, or other natural disasters that influence flooding, but while a homeowner may, for example, have earthquake coverage, that coverage may not cover floods as a result of earthquakes.

In the United States

Insurers in the US do not provide flood insurance coverage due to the hazard of flood typically being confined to a few areas. As a result, it is an unacceptable risk due to the inability to spread the risk on a wide enough population to absorb the potential catastrophic nature of the hazard. In response to this, the federal government created the National Flood Insurance Program The National Flood Insurance Program was created by the Congress of the United States in 1968 through the National Flood Insurance Act of 1968 (P.L. 90-448) in 1968.[3]

The National Association of Insurance Commissioners (NAIC) found that 33 percent of U.S. heads of household still hold the false belief that flood damage is covered by a standard homeowners policy. FEMA The Federal Emergency Management Agency, or FEMA, is an agency of the United States Department of Homeland Security, initially created by Presidential Order on 1 April 1979. The primary purpose of FEMA is to coordinate the response to a disaster that has occurred in the United States and that overwhelms the resources of local and state authorities states approximately 50% of low flood zone risk borrowers think they are ineligible and cannot buy flood insurance. Anyone can buy flood insurance as long as their community participates in the NFIP,[4] even renters.

If you are eligible, you must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program (NFIP). Flood insurance is available for residents of approximately 19,000 communities nationwide.

In the United Kingdom

Usually, the British insurers require from clients living in Flood Risk Areas to flood-proof their homes or face much higher premiums and excesses.[5]

References

  1. ^ Floods, Tornadoes, Hurricanes, Wildfires, Earthquakes... Why We Don't Prepare. By Amanda Ripley. Time. August 28, 2006.
  2. ^ http://www.fema.gov/pdf/nfip/manual200805/15pol.pdf
  3. ^ Property and Casualty Insurance, 3rd edition, 1991
  4. ^ "Purchasing Flood Insurance". Adjusters International. http://www.adjustersinternational.com/AdjustingToday/ATfullinfo.cfm?start=3&page_no=3&pdfID=44. Retrieved 2009-12-11.
  5. ^ http://www.edie.net/news/news_story.asp?id=13027&channel=0
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