Rivers crested after record rains eased in the Northeast U.S. on Tuesday leaving behind damage from some of the worst flooding the area has seen in nearly 80 years. As with the aftermath of last year's hurricanes, many homes and businesses will not survive because the three states hardest hit by the flooding have relatively low participation rates in the federal flood insurance program, according to the Boston Globe. Insured or not, many clients will be frantically calling their certified public accountants (CPAs) for help in putting things back together as the water recedes.
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Massachusetts, New Hampshire and Maine, the states hardest hit by the most recent flooding, have relatively low numbers of flood insurance policyholders. The Boston Globe reports that Massachusetts has a total of 44,4731 policies at the end of February, despite having a population of 6.4 million. New Hampshire had only 6,692 policies and Maine only 7,396 policies, according to the Globe.
This is not the first time that the number of people affected by flooding dramatically exceeds the number of people with flood insurance. The New York Times reports that almost half of those affected by Hurricane Katrina last year did not have flood insurance. Even so, the $25 billion in claims made by those who were insured bankrupted the program and forced the federal government to provide an additional $15 billion to help rebuild Louisiana and Mississippi.
Despite this, and the prediction that the 2006 hurricane season, which begins June 1, will be comparable to the 2004 and 2005 hurricane seasons, Congress seems disinclined to make anything but the most modest changes to the flood insurance program when it begins debating H.R. 4973 in the next few weeks. Positive signs, such as the redrawing of flood zone maps by the Federal Emergency Management Agency (FEMA), are contrasted by the lobbying efforts and even local and regional rivalries responsible for creating a program that doesn't have enough policyholders paying premiums sufficient to cover the risk of disaster, according to the Times.
ââYou've got people living in dry areas paying for people who want to keep living in wet ones,â U.S. Rep. Candice S. Miller (R-Mich) told the Times. âThey're sticking it to us, and I don't like it.â
Flood insurance is required only in areas designated as Special Flood Hazard Areas (SFHA). It should be noted, however, that flooding occurs in all 50 states and not just in SFHA areas. In fact, 20 - 25 percent of flooding occurs in areas of low and moderate risk.
âFlooding may be small and localized or major and catastrophic,â Jeff Deigl, Assistant Vice President of Specialty Lines for Allstate says. âIt is a misconception that flooding only occurs as a result of hurricanes. Flooding occurs throughout the United States as a result of thunderstorms and sudden thaw as well.â
Flooding is the nation's Number One natural disaster. Between 1995 and 2004, the latest period for which statistics are available, annual flood losses averaged $867 million. Currently, nearly 5 million policy holders are protected through the National Flood Insurance Program (NFIP), however many more remain at risk. There is a 26 percent chance of experiencing a flood during the life of a 30-year mortgage.
NFIP is a federally-backed flood insurance program available to homeowners, renters and business owners in communities that adopt and enforce floodplain management ordinances designed to reduce future flood damage and regulating construction in areas with high risk of flooding. There are more than 4.7 million flood insurance policies covering policyholders in approximately 20,000 participating communities nationwide. These policies represent nearly $793 billion worth of coverage. Most homeowners policies average $500 annually but can be as low as $112 in low and moderate risk areas. In Massachusetts, the Boston Globe reports that residential flood insurance costs average $800 annually. Policies are also available for renters and businesses, although the prices vary from those of homeowner policies. To determine the risk level of at a specific location, visit Floodsmart.gov. This web site can also help locate agent offering flood insurance convenient to the address submitted.
CPAs should regularly prompt their clients to review their insurance needs. Where appropriate, CPAs may wish to be party to the review. CPAs should also regularly review their own insurance needs, as well as having back-up and disaster recovery plans in place for their own businesses.
The Role of the CPA
The first thing any policyholder should do after a flood is call their insurance company. Three pieces of information are all that is needed for that initial call, they are:
- The name of the insurance company from which the policy was purchased;
- The policy number;
- Telephone number or email address where the policyholder can be contacted.
The policyholder may also want to ask for an approximate time frame during which they can expect a visit from an adjustor so they know how much time they have to gather records and other information vital to filing a claim. Photos of water in the property, water lines on the property and of damage to the contents of the property should also be taken as soon as it is safe to return to the property.
It is in collecting and recreating vital records, especially business records, that CPAs play a significant role. Depending on the relationship between client and CPA, the CPA may already have up to date accounting records for a business. Even if an accountant doesn't have up to date records, or has been affected by the flooding and lost the records, individual, family and business tax returns can be used to help reconstruct them. Copies of previously filed tax returns can be obtained through the Internal Revenue Services (IRS). Tax returns and business records can also be used to calculate and document loss of income. Calculating lost income involves determining:
- Projected net income
- Operating expenses not incurred
- Income earned since the flood
- Expenses incurred because of the flood
CPAs should be prepared to defend their calculations to adjusters, so the more documentation that can be saved or recovered the better.