Flood Prompts New Look At Federal Insurance Plans

WHO'S going to foot the bill for the catastrophic flooding in the Midwest? You are.

Relief provided by federal insurance programs will be only a drop in the bucket of billions of dollars in damaged crops and wrecked homes. Most of the other cleanup funds will have to come directly from taxpayers.

President Clinton already has pledged $1.2 billion to help cover crop losses. The federal crop-disaster fund holds about $400 million at the moment, so Congress will have to appropriate $800 million to cover the damages. An emergency bill, not subject to deficit-reduction goals, will soon be introduced for that purpose.

Uninsured farmers can expect to receive compensation for about half of their crop losses. Uninsured homeowners won't do as well. Those who don't qualify for low-interest loans from the Small Business Administration may get grants of up to $11,900 from the Federal Emergency Management Agency - not nearly enough to pay for the cost of rebuilding a house. Even so, FEMA plans to ask Congress for extra funding for the Midwest flooding.

Why aren't federal flood-insurance and crop-insurance programs paying a greater share of the costs? The biggest reason is that few people in the affected regions - or anywhere else - have bought the low-cost, government-subsidized insurance policies.

There are an estimated 6 million to 8 million structures located in flood-prone areas, but the National Flood Insurance Program has sold only 1.8 million policies there. Likewise, the Federal Crop Insurance Corporation has sold policies to about 35 percent of the eligible farmers.

Insurers lay much of the blame for lack of coverage at Congress's feet. "Congress has been so reliable in throwing money at them that a lot of farmers have stayed away from the insurance program," says Paul Horel, president of the Crop Insurance Research Bureau in Overland, Kan.

From 1980 to 1990, the United States Agriculture Department spent $6.2 billion to subsidize crop insurance, but also forked over $8.9 billion in direct payments to farmers following natural disasters. That kind of largess encourages farmers not to buy insurance, and it also leads many to take risks - such as building in flood-prone areas - that they otherwise might avoid.

The administration has recognized that there's a big problem. Agriculture Secretary Mike Espy said on ABC-TV on July 11 that the crop-insurance program is "a disaster in and of itself." Lawmakers are now working to reform it.

Rep. Glenn English (D) of Oklahoma included a provision in the House budget reconciliation bill that would provide farmers with free insurance that would kick in if they lose 65 percent of their crop. In the long term, Representative English hopes that his plan will double the number of crop-insurance policies and replace federal disaster handouts. But in the short term, expanded crop insurance would cost about $200 million, paid for through a 5 percent reduction in agricultural price-stabilization payme nts.

The Senate has passed less-sweeping changes in the crop-insurance program. English says the two plans will "mesh together quite well" in conference. In addition, he says, the conferees may make the catastrophic crop-insurance coverage retroactive to cover the Midwestern flood.

Attempts to reform the flood-insurance program for homes aren't as far along. Rep. Douglas Bereuter (R) of Nebraska and Sen. John Kerry (D) of Massachusetts are now crafting bills to encourage an increase in the number of people who buy insurance, but neither is expected to pass in the near future.

The key to both bills, aides say, will be enforcing and expanding a 1973 mandate that everyone who buys a mortgage guaranteed or insured by the federal government must buy federal flood insurance. But banks have been lax in enforcing this requirement.

"The big problem is perception," says Jim Taylor of the Federal Insurance Administration. "People think, `this isn't going to happen to me.' "