DO YOU LIVE in a flood plain? If you do, then check out your flood insurance policy right now and learn its limitations. Don't assume your insurance agent knows what he's talking about. And when it comes time to collect, expect the worst.
At least that's the conclusion one must draw from the report released yesterday by Baltimore County Executive James T. Smith Jr. and Steven B. Larsen, the former Maryland insurance commissioner Mr. Smith hired to look into insurance-related problems in Tropical Storm Isabel's wake. Eastern Baltimore County was hit hard by the September storm, but it's clear from the report that many of the storm victims got hit even harder by insurers. Ninety-seven percent of the people Mr. Larsen surveyed said their insurers failed them.
Their stories are compelling. In some cases, their mortgage lenders neglected to pay premiums. Many others were misinformed by the agents who sold them policies. How many policy-holders could have known, for instance, that furnishings kept in a basement family room wouldn't be replaced because it was below grade? Flood insurance is a federal program, but it's sold by private companies (which pocket 30 percent of premiums to cover administrative costs). Mr. Larsen found time and time again that neither homeowners nor their insurance agents fully understood the policies.
The report recommends a handful of reforms to the National Flood Insurance Program to make it easier for people to understand their policies and to collect claims when disasters strike. Mr. Larsen thinks the state should help pay for the uninsured losses - and endorsed legislation pending in Annapolis to offer low-interest loans to low- and moderate-income families. The NFIP recommendations could prove useful, particularly since Congress is about to reauthorize the flood insurance program.
But one other finding stands out. Mr. Larsen believes his successor as insurance commissioner, Alfred W. Redmer Jr., should intervene when flood claims have been handled unfairly. Mr. Redmer believes he has no role in these disputes because flood insurance is a federal program. Mr. Larsen contends the law is not so clear, and when there's doubt, shouldn't Mr. Redmer assume he can advocate on behalf of Maryland policy-holders?
We can only agree. Mr. Redmer objected to this report from the start and claimed Mr. Smith, a Democrat, only wanted to score political points against a Republican administration. But the report is no witch hunt. The problems are real - and particularly relevant for Maryland, where an estimated $8 billion of development rests in a flood plain. Until there are reforms (and perhaps more aggressive regulators), flood insurance looks like a case of caveat emptor - let the buyer beware.