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Amid Harvey's destruction, nation's flood insurance system is poised to expire

As Hurricane Harvey's floodwaters course through residential communities in parts of Texas and Louisiana, homeowners are bracing for another type of torrent: Expensive repair bills.

Exacerbating this already infuriating and escalating problem, however, is the fact that private insurance companies will not be paying for most of the residential flood damage. What's more, the federal plan that acts as homeowners' flood insurer of last resort is staggering under $25 billion in debt and is scheduled to expire in late September.

Should that federal insurance program lapse, or collapse, then millions of households — including those located on or around Chicago-area flood plains — risk getting wiped out in another deluge.

This is a crucial time for government and private insurance interests to join forces and find a way to fix and modernize the country's deeply flawed flood insurance system while making coverage more affordable.

Right now, industry estimates predict Harvey could inflict around $25 billion in insured losses. But the entire amount of property lost will be far in excess of that figure, insurance and business experts caution.

For publicly traded property casualty insurance companies — including Allstate, Travelers, Chubb and Progressive — Harvey's economic impact will hurt but "should be manageable," writes Brett Horn, a Morningstar senior equity analyst, in a report this week.

The same is expected to be true for Bloomington-based State Farm, a privately held mutual insurance firm with a national reach.

Neither Northbrook-based Allstate nor State Farm is making damage projections, but both firms have lots of policyholders in Harvey-ravaged areas, and the companies already have deployed thousands of claims specialists.

Basically, their customers' homes are insured against wind damage caused by Harvey while waterlogged automobiles are covered by auto policies with comprehensive damage insurance.

But when it comes to residential flood damage, the private insurance sector is off the hook.

The industry has long argued it cannot afford to pay for the extensive and expensive damage that come with severe floods. It's an argument that helped spawn the government's own plan under the National Flood Insurance Act of 1968.

Despite its longevity, the program's reach is limited, providing coverage for only 5 percent of all U.S. households.

For example, only 1 out of every 5 people living in the Houston-area carry the government flood coverage, according to state insurance authorities.

In Illinois, the numbers are also on the low side. Among millions of households, only 41,000 policies are in force, with a high concentration of those in suburban Cook, DuPage, Lake, Kane and McHenry counties, reports the Federal Emergency Management Agency, which administers the insurance effort.

Residents in those counties recently dealt with the ramifications of intense flooding. Many know the pain of having their lives disrupted and the cost of putting their worlds back together.

Limitations aside, the federal insurance program does help people recover. But it also has the potential to do much more.

Unfortunately, the current effort is reeling from some of its own flood-related troubles. The program is $25 billion in debt to the U.S. Treasury and is soon set to expire.

As the Tribune recently reported, there are over a dozen bills in Congress addressing the reauthorization of the flood insurance plan.

It's essential that Congress and the Trump administration craft a new federal flood plan that's better than the current iteration.

What that exactly means will have to be hashed out. Ideally, it becomes a financially viable insurance plan that's also affordable and accessible to a greater number of communities at risk of flooding.

Yes, easier said than done.

Yet one significant step toward accomplishing these goals is luring private carriers back into the flood insurance business and get a little private enterprise going. Insurance experts say some major companies are interested in this business sector, provided the circumstances are right and the numbers can work.

One good start may be lowering or getting rid of outdated regulatory barriers that limit private carriers from participating in a federal flood insurance plan or getting into it on their own.

You don't have to be an insurance expert to notice the devastating personal and financial impact adverse climate conditions are having throughout the country and world.

Perhaps by coming up with new and better ways to insure against severe floods, we can do more about the weather than just talk about it.

roreed@chicagotribune.com

Twitter @reedtribbiz

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