Friday, May 27, 2011

A Friend in Need

"A friend in need is a friend indeed," goes the old expression.  And this Memorial Day weekend, many Americans across this country are in need.  They may not be our personal friends, but they are certainly our neighbors as Americans and citizens of this great country.

Earlier this week, a tornado hit Joplin, Missouri which killed approximately 130 people and destroyed 1/3 of the town.  Since Joplin is within 30 miles of the tiny town where my grandmother lives, I was watching the storm activity very carefully.  While I was saddened, as most Americans were, to see the loss of life and loss of property caused by the storm, I have been heartened to see the help that many Americans have furnished to the people of Joplin.  I have heard stories of people from as far away as New York taking a few days off work to go to Joplin and hand out water and supplies.  A number of Christian ministries which are headquartered close to Missouri have also dispatched workers to aid to the people of Joplin. 

I was especially distressed to find out this week that the majority of the damage may not be covered by insurance, so I did some research to find out why.  It turns out that in the most heavily tornado prone states, large number of homeowners do not carry hazard insurance with wind coverage.  According to to an AP story posted May 26, 2011, about 10.5% of  owner-occupied homes in Missouri do not carry hazard insurance.  About 4% of the residents of Alabama, Georgia, Kentucky and Tennessee do not carry hazard insurance.  In Arkansas and Mississippi the percentage of ininsured homeowners is much higher--30% of homes in Arkansas and Mississippi do not have hazad insurance policies.  The reason--many of the homes have been inherited and passed down from generation to generation.  Since they do not have mortgages, insurance is not required, and since the structures are old and often have not been updated, the houses may be very expensive to insure or actually uninsurable.  According to Census Data, thirty percent of homes in Missouri are owned free and clear, and 43% and 41% of the homes in Mississippi and Arkansas, respectively, do not have a mortgage.

That means that victims of natural disasters such as the ones we have just witnessed have to turn to the government for help.  FEMA is authorized to pay approximately $30,000 to homeowners for temporary housing and replacement housing.  Homeowners can also seek help from the SBA in the form of loans.  This actually is a good option for credit-worthy borrowers.  One of my regular clients took advantage of an SBA loan when her home was damaged by the 2006 flooding in El Paso, Texas.  The SBA provided a low interest rate loan which allowed her to make the repairs and amortize them over a period of time.

So what are the people of Joplin to do?   President Obama has declared the area a natural disaster, and Congress is authorizing an extension for natural disaster relief funds so that the victims of the tornado can get help.  Congressman Roy Blunt (R. MO) has promised his district all of the help that they need, although House Majority Leader Eric Cantor (R VA) said publicly this week that any relief funds for Joplin needed to be offset by spending cuts elsewhere.  Cantor's remarks were immediately criticized by Democrats and some in his own party.  While this makes a good political football, Cantor is not totally off target here--surely the funds needed to help Joplin can be reallocated from somewhere else so that the residents of Joplin can get the help that they need and we can still have a balanced budget.

Of course, Joplin is just the latest area to be hit by a natural disaster.  Earlier this month, rising flood waters forced the U.S. Army Corps of Engineers to open the Morganza Spillway, flooding more than 18,000 acres of farmland in Lousiana.  And there have been reports that much of the damage from the flooding may not be covered by flood insurance.  There are two sides to the flood insurance problem.  First, a large number of residents of Lousiana apparently don't carry flood insurance since they are not in designated flood zones. Second, those who do carry flood insurance may not be able to collect on their policies since the disaster was  "man made".  Lousiana Agriculture and Forestry Commissioner Mike Strain is pressuring the U.S. Department of Agriculture to designate the opening of the spillway as a natural disaster, which will require that the claims be paid. (Of course, that will not help those who were not insured in the first place.)

Regardless of whether the opening of the Spillway was avoidable or not, the decision to open the Spillway and flood the community was one made by a government agency.  Since that is the case, the government should have to pay the claims and reimburse those who did not have flood insurance but were flooded anyway.  If a private corporation flooded 18,000 acres of land for "the greater good" they would be sued into oblivion, but before that happened, FEMA, the USDA, and any number of other agencies would be knocking down the doors of their corporate headquarters levying fines and demanding restitution for the victims.  (Does anyone remember BP?)  Just because Uncle Sam made the decision to open the Spillway does not mean that he should be exempt from paying for the damage caused by doing so. 

While we pray for the victims of all of the natural disasters, we have to be very careful of the political wranglings that can come out of a season such as this one.  With so many ininsured homeowners seeking help from FEMA and the federal government, there are rumblings of a national mandate to purchase property insurance, flood insurance and windstorm insurance.  Dodd Frank creates a national Office of Insurance which consolidates supervision over all forms of insurance,  except health insurance,  into a new federal agency.  And that means that we could see a huge battle beginning to percolate over mandated property coverage just as we saw a huge battle last year over mandated health insurance coverage.

The main reason that homeowners cited for not having property insurance in the AP story is the cost of the premiums. One couple, Tammy and Kevin Cudy of Joplin, had previously had insurance on their home but in August of last year they dropped the policy after Kevin lost his job because they could no longer afford the $50.00 a month premiums.  If the Cudy's and others like them could afford the insurance, I am confident that they would purchase it.  So perhaps the answer is to allow more, competing insurance companies into these states who could offer insurance at lower premiusm. And perhaps for all but the lowest income families, the help that is needed could come in the form of low interest loans rather than government grants. But mandating insurance coverage for all homeowners in order to spread the cost around more evenly, in the hopes of reducing premiums and preventing FEMA from paying excessive claims is just Obamacare, the sequel.  It will make the cost of homeownership more expensive, and force families who inherited their homes out of their properties if they cannot pay the premiums.  What has happened in Joplin and in Lousiana is tragic, but using the tragedy as an excuse to seize more government control over private citizens and potentially force many more people out of their homes is a disgrace.

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