Bill includes unprecedented flood aid

Victims facing financial crisis
The proposal to bail out homeowners without flood insurance would help thousands of storm victims currently facing the possibility of foreclosures. Some banks in the Gulf Coast have been lenient on late mortgage payments but have not decided when they will stop making concessions.

According to data released by the Census Bureau and FEMA published in The New York Times, the percentage of homes with flood insurance in counties affected by Katrina varied. In Louisiana, it ranged from 57.7 percent to 7 percent of people in affected areas; in Mississippi, 23.4 percent to 10.4 percent; and in Alabama, 23.5 percent in 3.9 percent.

Mississippi Gov. Haley Barbour hailed the proposed package as a success.

“This will boost the prospects of recovery for thousands of families who had homeowners insurance, but not flood insurance, and lost their homes to the storm surge,” he said in a press release after the House passed the bill Monday morning. “... I am encouraged Congress will soon pass this package.”

Landrieu said she hopes the bill will pass in time to deliver the grants as the holidays approach. “The Community Development Block Grants will allow us to use the money that FEMA has been sitting on for nearly three months on programs that really work so we can help the people of the Gulf Coast rebuild,” she said.

Disincentive to buy insurance?
If the Senate agrees to the bill, it would be considered a huge victory for Barbour and  lawmakers, including Cochran and Taylor, who sought federal aid for the uninsured.

Cochran argued that Katrina was an “extraordinary event” for which victims deserved the additional help.

Only flood victims who own their homes — not renters — would be eligible for grant assistance, officials said. Any FEMA payments the homeowners have already received would be deducted from the maximum $150,000 they can be awarded.

Bob Hartwig, senior vice president and chief economist with the non-profit Insurance Information Institute, said such an unprecedented bailout by the government would almost certainly make people reconsider buying flood insurance in the future.

“The more aid people feel they're going to get after a disaster, the more disincentive there is to buy insurance. Why buy it if you can get it retroactively?” Hartwig said.

Insurers being sued
The same disincentive, he said, comes from lawsuits currently being filed by people who did not have flood insurance but are suing insurers, arguing that insurance should cover the water damage from a wind-driven storm surge. If successful, Hartwig believes government aid and suing will be seen as alternatives to purchasing flood insurance.

“It does serious damage to the National Flood Insurance Program, which is a federal program, because people would not see the value to it,” Hartwig said. “In reality, many flood victims already have checks in their hands if they had flood insurance. There's no good substitute for actual insurance.”

But Ed Pasterick, a senior adviser for the National Flood Insurance Program, which is administered by FEMA, disagreed.

“I think people are viewing Katrina as an exceptional storm in the sense that it is out of proportion with anything before,” he said. “Therefore it's hard to draw long-term conclusions. I think it might not be quite as negative an impact (as predicted).”

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