Many residents of beachfront communities ran from their homes on March 6, 1962, when a ferocious northeast storm struck the New Jersey coast.
The following morning, many of their houses, although damaged, still stood. By that afternoon, the third high tide of the storm had reduced most of them to sticks. Family possessions were gone.
Insurance to pay for the clothes, dishes, toys, furniture and rugs was not available. Families would recover and even joke about the relief of no longer having to bring out unattractive vases or bowls to please gift-giving guests, but it took time and money.
The March Storm of 1962 was among several natural disasters that prompted Congress in 1968 to adopt the National Flood Insurance Program as a way to provide coverage for properties within floodplains.
Controversy has developed over the program: Detractors say it has encouraged building and development in areas where catastrophic losses are all but certain.
Insurance policies are sold through private companies, but policies are backed by the federal government. Municipalities must opt in to the program, and property owners can earn discounts on rates based on various building alterations that theoretically would reduce losses from flood damage.
Single-family houses are insured by the federal program up to $250,000; those property owners who need more insurance must take their chances on the open market — something that has grown increasingly difficult in the past eight years after Florida and other parts of the Gulf Coast suffered catastrophic losses due to hurricanes.
“I’m sorry to say that most of our domestic insurance companies are not anxious to write policies on the coast or barrier islands,” said Andrew Anderson, owner of Anderson Insurance, which is based on Long Beach Island.
Insurance companies have increasingly dropped policies for properties along the coast or have significantly increased premiums; monthly bills can be extremely high.
A study released in February by the Consumer Federation of America found that insurance companies increasingly are shifting costs to the policy owner through higher deductibles and lower caps for the amount the policy will pay if a house is damaged or destroyed.
That shift ultimately means more financial risk for taxpayers because the National Flood Insurance Program is $20 billion in debt, the study stated.
“Congress should require the private sector to take a small, but growing, percentage of the risk over time,” the study stated.
While property on barrier islands clearly has a much higher risk of sustaining damage, insurance companies have been using models that sometimes overstate that risk of financial loss, Anderson said.
For example, Anderson said, insurance companies ran multiple weather models just before Hurricane Irene made landfall in North Carolina to determine what the damage in New Jersey could be. When the storm passed, the pre-storm estimate was more than double what actually occurred on the coast, Anderson said.
“One of the things that alarms me is insurance companies are making business decisions based on these models and those decisions affect their policy owners,” Anderson said. Those decisions can range from increasing rates or dropping coverage by not renewing policies, Anderson said.
“They make those business decisions based in part what modelers tell them, and we now know the model can be wrong.”
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