Flood Resiliency

FEMA’s Revisions May Result in Less Flood Protection

FEMA's recent flood map exempted about 60,000 homeowners in New Orleans from required NFIP coverage. Will private insurers step in to offer protection?
By: | October 18, 2016 • 4 min read

No one is more impressed than Susan Williams by the shoring up of 50 levees and rehabilitation of flood walls and pumping stations overwhelmed when Katrina struck New Orleans hit in 2005.

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Nor is CoreLogic’s content strategist surprised by the result: FEMA map revisions that removed nearly 60,000 homes from the Special Flood Hazard Areas (SFHA) on Sept. 30, exempting their owners from mandatory compliance with NFIP flood insurance requirements.

But Williams’s buoyant mood comes with a caveat.

“If the lender only follows the government guidelines, homeowners would not be required to obtain flood insurance. But just because they’re not in that flood hazard area anymore because of the new mapping doesn’t mean the flood risk has gone away.”

John Elbl, vice president, AIR Worldwide

John Elbl, vice president, AIR Worldwide

John Elbl, vice president at AIR Worldwide, agreed with that assessment, fearing individuals still at great risk may elect to drop flood coverage from their policies to save money in the short term.

“We’re hopeful private insurers will step in to help fill this protection gap by charging actuarially sound rates and providing policyholders with more comprehensive coverage options.”

The problem may not be private insurers, however, but the banks. A year ago, Elbl noted the opportunities for insurance industry to provide alternative coverage to the NFIP ran into complications, not the least of which was reluctance on the part of banks to accept policy wording that wasn’t identical to the NFIP’s.

That uncertainty, he said at the time, “restricts the ability of the customer to choose private coverage.”

Today, Elbl said insurers considering entering the market to compete with the NFIP are pinning their hopes on expected NFIP rate increases driven by the program’s $24 billion deficit and its inability to offer more than limited coverage for policy holders.

“NFIP policies do not cover basements, do not include payouts based on loss of use of a property, and only pay actual cash value, less depreciation, as opposed to standard HO3 policies which pay out full replacement costs.”

Another bright sign, added Williams, are for properties in areas of greatest risk and who pay the highest rates.

“The cost of flood insurance should go down and hopefully that will in turn make people more interested in getting coverage. That in turn adds to the resilience of the area.”

Overly Optimistic Message

Dean Basse couldn’t disagree more. The general manager at Dan Burghardt Insurance in New Orleans said an overly optimistic message to cash-starved homeowners about the city’s improved levee system will disincentivize them from obtaining flood insurance when they’re no longer required by federal law to do so.

“We can’t give away a policy unless they’re forced to buy it,” says Basse. “They won’t buy flood insurance voluntarily even at the PRP rate.”

Moreover, the infrastructure rehab along Louisiana’s 300-mile coast line, said Basse, may not be the final answer in flood protection.

“They spent a billion dollars to build this giant rock wall and someone forgot that it’s still built on mud. Our mud is not known for being the most solid thing in the world. And it’s sinking.”

Jackie Noto, model product manager, Risk Management Solutions

Jackie Noto, model product manager, Risk Management Solutions

It gets worse, Basse added, the next time another major catastrophe hits New Orleans like Katrina, like Betsy in 1965 or the “thousand-year rain” that dropped onto Louisiana this year.

Jackie Noto’s concerns are more for the NFIP itself, which was intended, the model product manager at Risk Management Solutions said, to support the original charter and objectives of the Flood Protection Act.

Unfortunately, said Noto, “the NFIP is 50 years old and its methodologies and approach haven’t aged gracefully.”

What the NFIP must do, she said, is “move away from this `in or out’ mentality. What matters is the depth, severity and frequency of flood risk for our entire area.”

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“That’s also been proven in the recent Louisiana flooding as well where buildings that were damaged weren’t considered on plain and still aren’t as recently as FEMA’S map updates. That’s definitely not an adequate approach.”

To those insurers who believe there is no such thing as a bad risk, only a bad price, Noto said their business actually improves the more they are able to differentiate risk.

“When they have information on the level of protection and probability of flood defense failure, that allows them to price risk to reflect the appropriate risk itself.”

Unfortunately, Noto added, “that’s not something the insurance industry is used to.”

David Godkin is a freelance magazine writer based in Toronto. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

After 20 years in the business, Navy Pier’s Director of Risk Management values her relationships in the industry more than ever.
By: | June 1, 2017 • 4 min read

R&I: What was your first job?

Working at Dominick’s Finer Foods bagging groceries. Shortly after I was hired, I was promoted to [cashier] and then to a management position. It taught me great responsibility and it helped me develop the leadership skills I still carry today.

R&I: How did you come to work in risk management?

While working for Hyatt Regency McCormick Place Hotel, one of my responsibilities was to oversee the administration of claims. This led to a business relationship with the director of risk management of the organization who actually owned the property. Ultimately, a position became available in her department and the rest is history.

R&I: What is the risk management community doing right?

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The risk management community is doing a phenomenal job in professional development and creating great opportunities for risk managers to network. The development of relationships in this industry is vitally important and by providing opportunities for risk managers to come together and speak about their experiences and challenges is what enables many of us to be able to do our jobs even more effectively.

R&I: What could the risk management community be doing a better job of?

Attracting, educating and retaining young talent. There is this preconceived notion that the insurance industry and risk management are boring and there could be nothing further from the truth.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

In my 20 years in the industry, the biggest change in risk management and the insurance industry are the various types of risk we look to insure against. Many risks that exist today were not even on our radar 20 years ago.

Gina Kirchner, director of risk management, Navy Pier Inc.

R&I: What insurance carrier do you have the highest opinion of?

FM Global. They have been our property carrier for a great number of years and in my opinion are the best in the business.

R&I: Are you optimistic about the US economy or pessimistic and why?

I am optimistic that policies will be put in place with the new administration that will be good for the economy and business.

R&I: What emerging commercial risk most concerns you?

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The commercial risks that are of most concern to me are cyber risks, business interruption, and any form of a health epidemic on a global scale. We are dealing with new exposures and new risks that we are truly not ready for.

R&I: Who is your mentor and why?

My mother has played a significant role in shaping my ideals and values. She truly instilled a very strong work ethic in me. However, there are many men and women in business who have mentored me and have had a significant impact on me and my career as well.

R&I: What have you accomplished that you are proudest of?

I am most proud of making the decision a couple of years ago to return to school and obtain my [MBA]. It took a lot of prayer, dedication and determination to accomplish this while still working a full time job, being involved in my church, studying abroad and maintaining a household.

R&I: What is your favorite book or movie?

“Heaven Is For Real” by Todd Burpo and Lynn Vincent. I loved the book and the movie.

R&I: What’s the best restaurant you’ve ever eaten at?

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A French restaurant in Paris, France named Les Noces de Jeannette Restaurant à Paris. It was the most amazing food and brings back such great memories.

R&I: What is the most unusual/interesting place you have ever visited?

Israel. My husband and I just returned a few days ago and spent time in Jerusalem, Nazareth, Jericho and Jordan. It was an absolutely amazing experience. We did everything from riding camels to taking boat rides on the Sea of Galilee to attending concerts sitting on the Temple steps. The trip was absolutely life changing.

R&I: What is the riskiest activity you ever engaged in?

Many, many years ago … I went parasailing in the Caribbean. I had a great experience and didn’t think about the risk at the time because I was young, single and free. Looking back, I don’t know that I would make the same decision today.

R&I: What about this work do you find the most fulfilling or rewarding?

I would have to say the relationships and partnerships I have developed with insurance carriers, brokers and other professionals in the industry. To have wonderful working relationships with such a vast array of talented individuals who are so knowledgeable and to have some of those relationships develop into true friendships is very rewarding.

R&I: What do your friends and family think you do?

My friends and family have a general idea that my position involves claims and insurance. However, I don’t think they fully understand the magnitude of my responsibilities and the direct impact it has on my organization, which experiences more than 9 million visitors a year.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]