Life Insurance

Flood claims swamp FEMABy Kathy Chu, USA TODAYA record number of flood-insurance claims from Hurricanes Katrina and Rita could raise policyholders' rates and force regulators to rethink who is required to buy the government-backed coverage.

Home and business owners affected by the hurricanes had filed 199,850 flood-insurance claims by the end of last week, more than four times the total filed after Florida's four hurricanes last year.

The Federal Emergency Management Agency, which oversees the program, expects $10 billion to $30 billion in total flood payouts. It takes in only $2 billion a year in insurance premiums, so it will have to borrow money.

Because of the shortfall, "I think it's reasonable to assume that we will have to sit down and determine where we go from here," says Edward Pasterick, a senior flood adviser at FEMA.

Currently, the average flood-insurance policy costs $400 a year, although property owners in high-risk flood zones might pay substantially more, FEMA data show.

Douglas Elliott, president of the Center on Federal Financial Institutions, or COFFI, a non-partisan think tank, says that in the next few years, rates could climb 25%.

• Flood-insurance subsidies could be scrutinized, Pasterick says. COFFI estimates that discounted policy rates of up to 60% are currently given to owners of properties built before coverage was required. Last year, FEMA lost $1.3 billion in premiums due to subsidies, the center says.

• Regulators might step up enforcement of the requirement for flood insurance. Some property owners who are required to buy flood insurance cancel it after the first few years, COFFI says.

• State regulators are meeting next month in San Francisco to explore the idea of a national catastrophe program. In one version, coverage would be mandatory for all homeowners, spreading insurance risk across the country.

The summit was planned "well before Katrina," says Howard Mills, superintendent of the New York State Insurance Department. But Katrina "does give us an opportunity to focus" on this insurance issue.

This is cache, read story here