Only 20 percent of flood-prone homes in the United States carry flood insurance; only 40 percent of eligible farmland is covered by crop insurance; and fewer than 25 percent of California homes are protected by earthquake insurance (nationally the rate is 5 percent).
Why so little protection? “It is hard to sell crop or flood insurance as a risk-management tool when the farmer believes the government will bear the risk and make disaster payments at no cost to the producer,” says a newsletter from the National Grange, a Washington farm lobby.
In Quincy, Ill., farmer William Parrish had flood insurance on his house but let it lapse because it cost $400 a year on top of his homeowner's, health and car insurance. Besides, the local levee hadn't broken for 100 years, he told The Wall Street Journal during this summer's flooding. “Flood insurance, the way I understand it,” doesn't pay all that much anyway, added Ed Wilcox, a drainage-district worker who lost his home to flooding near Meyer, Ill. “My neighbor said if you save your premiums, you're better off.”
Other farmers complain that deductibles for crop insurance reach anywhere from 25-65 percent of crop losses, depending on the policy, which only appeals to farmers in the highest-risk areas.
From its inception in 1968, the National Flood Insurance Program has battled apathy among property owners, even though insurance is mandatory in designated areas. “It got off the track because originally you couldn't buy it from your own insurance agent,” notes Jack Weber, executive director of the Natural Disaster Coalition. “It wasn't well thought out.”
In response, Congress has mandated since 1973 that all mortgages that are insured or regulated by the government require flood insurance. Enforcement, however, has been spotty, made difficult when mortgages are sold on the secondary market or paid off, or when the property is remapped and newly included in a flood zone.
“We're going to have to do a better public-awareness campaign” on flood insurance, said James L. Witt, the new director of the Federal Emergency Management Agency (FEMA), which administers the program. Indeed, many victims of this summer's flooding were surprised to learn that their standard homeowner's policies did not cover floods.
In California, where the infamous San Andreas Fault makes earthquakes a fact of life, quake insurance can cost an additional $330 or more a year on a $250,000 house, compared with only $100 more in Memphis, Tenn., also situated on a fault line. And earthquake insurance requires a deductible of 10 percent of the property value.
Given those expenses, Richard E. Walden, executive director of the Los Angeles-based disaster-relief group Operation USA, decided not to buy quake insurance. Instead, he spent $2,000 to have his house earthquake-proofed.