Free Essay

Flood Insurance in Bangladesh

In: Other Topics

Submitted By Xachiever
Words 9133
Pages 37
Table Of Contents

Chapter 1: Introduction 3 1.1 Objectives of the study 3 1.2 Methodology used in the study 4 1.3 Limitations of the study 5 Chapter 2: Introduction of flood insurance 6 Flood insurance 7 Chapter 3: Origin of flood insurance 8 Chapter 4: Necessity of flood insurance 10 Flood insurance eligibility 11 Top misconceptions about flood insurance: 12 Chapter 5 : Flood insurance(usa) 14 5.1: Overview 14 5.2: Development of flood insurance in usa & concern laws 16 5.3: Standard flood insurance policy 20 5.4: Terms & conditions 22 5.5: Criticism 28 5.5.1: Hurricane Andrew – 1992 28 5.5.2: Hurricane Katrina – 2005 28 Chapter 6: First flood insurance program 30 Chapter 7: Current overview of flood insurance in bangladesh 33 Chapter 8: Comparative analysis on flood insurance perspective between bangladesh and usa 36 Chapter 9: Conclusion 43 Bibliography 44

Chapter 1

Chapter 1: Introduction
1.1 Objectives Of The Study * a brief knowledge about flood insurance. * describing the flood insurance in respect of usa. * describing the flood insurance in respect of bangladesh. * scope of flood insurance. * comparative analysis between usa and bangladesh over flood insurance.


1.2 Methodology Used In The Study

Outline Of Methodology methodology for this study regarding the tax situation in bangladesh will reveal the entire process that would be followed for the completion of the study successfully. this study will be carried out in several steps. following methodology would be adopted to fulfill the objectives:-

Data Collection Method this report is mostly descriptive, a few part consisting of analysis. as the overall report is on some strategies, so i have used both the primary and secondary source. these are as below:

Primary Data
Secondary Data
IT Ordinance
Information from indirect source
Website of World Bank

Data Collection Method

1.3 Limitations Of The Study * lack of experience * lack of knowledge * time management

Chapter 2
Overview of flood insurance

Chapter 2: Overview of Flood Insurance

A flood is "a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder's property) from:

* Overflow of inland or tidal waters; or * Unusual and rapid accumulation or runoff of surface waters from any source; or Mudflow; or * Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.
Securing your own flood insurance policy is by far the best strategy for protecting against massive personal financial loss due to flooding. The federal government does not provide financial assistance unless the president declares a disaster, and even then, help often comes in the form of loans that must be repaid with interest.
Flood insurance denotes the specific insurance coverage against property loss from flooding. To determine risk factors for specific properties, insurers will often refer totopographical maps that denote lowlands, floodplains and floodways that are susceptible to flooding. Floods cause millions of dollars in damage to homes each year. But traditional homeowners insurance does not cover flood damage. There are two types of flood insurance coverage available: building property and personal property.


Chapter 3
Origin of flood insurance

Chapter 3: Origin Of Flood Insurance

In 1968,
Before congress passed the national flood insurance act after frequent widespread flooding along the mississippi river, the national response to flood disasters had been to build dams, levees and other structures to hold back flood waters, a policy that may have encouraged building in flood zones.the national flood insurance act created the national flood insurance program (nfip), which was designed to stem the rising cost of tax-payer funded relief for flood victims and the increasing amount of damage caused by floods. The nfip has three components: 1. To provide flood insurance,
2.floodplain management and
3. Flood hazard mapping.
Federal flood insurance is only available where local governments have adopted adequate flood plain management regulations for their floodplain areas as set out by nfip. About 20,400 communities across the country participate in the program. Nfip coverage is also available outside of the high-hazard areas.

In 1969,
The law was amended to provide coverage for mudslides and again in 1973. Until then, the purchase of flood insurance had been voluntary, with only about one million policies in force. The 1973 amendment put constraints on the use of federal funds in high-risk floodplains, a measure that was expected to lead to almost universal flood coverage in these zones. The law prohibits lenders that are federally regulated, supervised or insured by federal agencies from lending money on a property in a floodplain zone when a community is participating in the nfip, unless the property is covered by flood insurance. The requirement for flood insurance also applies to buildings that receive financial assistance from federal agencies such as the veterans administration. However, because the initial mortgage on the property is frequently sold by the originating bank to another entity, enforcement of this law has been poor.

In 1994,
Legislation was enacted to tighten enforcement of flood insurance requirements. Regulators can now fine banks with a pattern of failure to enforce the law and lenders can purchase flood insurance on behalf of homeowners who fail to buy it themselves, then bill them for coverage. The law includes a provision that denies federal disaster aid to people who have been flooded twice and have failed to purchase insurance after the first flood. Buildings constructed in a floodplain after a community has met regulations must conform to elevation requirements. When repair, reconstruction or improvement to an older building equals or exceeds 50 percent of its market value, the structure must be updated to conform to current building codes. A 2007 nfip study on the benefits of elevating buildings showed that due to significantly lower premiums homeowners can usually recover the higher construction costs in less than five years for homes built in a “velocity” zone, where the structure is likely to be subject to wave damage, and in five to 15 years in a standard flood zone. The federal emergency management agency (fema) estimates that buildings constructed to nfip standards suffer about 80 percent less damage annually that those not built in compliance

Chapter 4
Necessity of Flood Insurance

Chapter 4: Necessity Of Flood Insurance

The federal government considers floods the nation's most common natural disaster. They strike every state and leave homeowners with huge repair costs. But most homeowners insurance policies don't protect from those losses. The necessities of flood insurance are the following: * "floods can occur anywhere," says Corise Morrison, executive director of residual markets for usaa. "low risk does not mean no risk." * Nearly 25% of the national flood insurance program's claims come from people with property outside of high-risk areas, according to federal estimates. * Floods are the most widespread natural disaster aside from wildfires. 90% of all u.s. Natural disasters declared by the president involve some sort of flood. * Since flood damage is almost never covered by homeowners insurance, flood insurance is important for people living in high-risk flood zones. * These polocies may provide protection for any kind of flood damage. * Homeowners are required to purchase flood insurance if they have a federally backed mortgage and live in a high-risk flood area as identified by the national flood insurance program * With very low premiums starting a year for a home and its contents, it's coverage homeowners may want to consider.1 * Homeowners can assess their risk for natural disasters plus get tips on how to minimize them and protect their personal property with usaa's property risk assessment tool.3 additional information on risk ratings is also available through the national flood insurance program.
But don't wait until an extreme storm is approaching to act. Normally, flood coverage won't begin until 30 days after purchase.

Flood insurance eligibility

To be eligible for flood insurance, the person must live in a community that participates in the nfip. In return, communities must implement floodplain-management regulations that minimize future flood losses. To see if the community participates in nfip,community status book must be checked.although flood insurance can be relatively inexpensive depending on where the person live, most people neglect to purchase protection. Yet every home has a 26 percent chance of flooding as opposed to the 9 percent chance of fire during the course of a typical 30-year mortgage, according to the nfip. Almost 25 percent of all flood insurance claims come from areas with low to moderate flood risk.
Nfip says the average flood claim has been over $33,000 for the past 10 years.
Nfip is also in charge of mapping the nation's floodplains, which provides the basis for flood-management programs. Nfip offers an online tool where the flood risk for the property can be found.
Since the federal government sets flood insurance prices, private insurance companies that sell flood insurance compete on service, not on price. These "write your own" companies make money from service fees allotted by the nfip.
Top misconceptions about flood insurance:

I. You can get flood insurance nationwide. II. You can get flood insurance if you live in a floodplain or high flood-risk area. III. You can get flood insurance if you live outside a floodplain, or in a low to moderate flood-risk area, and at lower cost. IV. You can get flood insurance if your property has been flooded before. V. You can get flood insurance from insurance agents in your area. VI. You can buy flood insurance even if your mortgage lender doesn't require it.

Chapter 5
Flood Insurance (USA)

Chapter 5 : Flood Insurance(Usa)
5.1: Overview

* Nationwide, only 20% of American homes at risk for floods are covered by flood insurance. most private insurers do not insure against the peril of flood due to the prevalence of adverse selection, which is the purchase of insurance by persons most affected by the specific peril of flood. in traditional insurance, insurers use the economic law of large numbers to charge a relatively small fee to large numbers of people in order to pay the claims of the small numbers of claimants who have suffered a loss. Unfortunately, in flood insurance, the numbers of claimants is larger than the available number of persons interested in protecting their property from the peril, which means that most private insurers view the probability of generating a profit from providing flood insurance as being remote. however, there are insurers such as pure, Chubb, aig / chartis, and fireman's fund that do provide privately written primary flood insurance for high value homes and the natural catastrophe insurance program underwritten by certain underwriters at Lloyd’s which provides private primary flood insurance on both low value and high value buildings. * In certain flood-prone areas, the federal government requires flood insurance to secure mortgage loans backed by federal agencies such as the fha and va. however, the program has never worked as insurance, because of adverse selection. it has never priced people out of living in very risky areas by charging an appropriate premium, instead, too few places are included in the must-insure category, and premiums are artificially low. the lack of flood insurance can be detrimental to many homeowners who may discover only after the damage has been done that their standard insurance policies do not cover flooding. * Flooding is defined by the national flood insurance program as a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or two or more properties (at least one of which is your property) from: overflow of inland waters, unusual and rapid accumulation or runoff of surface waters from any source, and mudflows. * This can be brought on by landslides, hurricanes, earthquakes, or other natural disasters that influence flooding, but while a homeowner may, for example, have earthquake coverage, that coverage may not cover floods as a result of earthquakes. * Very few insurers in the us provide flood insurance coverage due to the hazard of flood typically being confined to a few areas. as a result, it is an unacceptable risk due to the inability to spread the risk to a wide enough population in order to absorb the potential catastrophic nature of the hazard. in response to this, the federal government created the national flood insurance program in 1968. * The national association of insurance commissioners (naic) found that 33 percent of u.s. heads of household still hold the false belief that flood damage is covered by a standard homeowners policy. Fema states that approximately 50% of low flood zone risk borrowers think they are ineligible and cannot buy flood insurance. Anyone residing in a community participating in the nfip can buy flood insurance, even renters. However, unless one lives in a designated floodplain and is required under the terms of a mortgage to purchase flood insurance, flood insurance does not go into effect until 30 days after the policy is first purchased. * Individuals who are eligible and who have mortgages on their homes are required by law to purchase a separate flood insurance policy through a private primary flood insurance company or through an insurance company that acts as a distributor for the national flood insurance program (nfip). flood insurance may be available for residents of approximately 19,000 communities nationwide through the nfip. Flood insurance may be available through private primary flood insurance carriers in any of the 19,000 communities participating in the nfip as well as other communities that are not participating in the nfip.

5.2: Development Of Flood Insurance In Usa & Concern Laws
The development of flood insurance in usa can be as emergence of national flood insurance program (nfip) and federal emergency management agency (fema).

5.2.1: National Flood Insurance Program (Nfip) * The national flood insurance program (nfip) is a program created by the congress of the united states in 1968 through the national flood insurance act of 1968 (p.l. 90-448). The program enables property owners in participating communities to purchase insurance protection from the government against losses from flooding. This insurance is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing damage to buildings and their contents caused by floods. As of april 2010, the program insured about 5.5 million homes, the majority of which were in texas and florida.

* Participation in the nfip is based on an agreement between local communities and the federal government that states that if a community will adopt and enforce a floodplain management ordinance to reduce future flood risks to new construction in special flood hazard areas (sfha), the federal government will make flood insurance available within the community as a financial protection against flood losses.

* the sfhas and other risk premium zones applicable to each participating community are depicted on flood insurance rate maps (firms).

* the mitigation division within the federal emergency management agency manages the nfip and oversees the floodplain management and mapping components of the program.

* The intent was to reduce future flood damage through community floodplain management ordinances and provide protection for property owners against potential losses through an insurance mechanism that requires a premium to be paid for the protection.

* the nfip is meant to be self-supporting, though in 2003 the gao found that repetitive-loss properties cost the taxpayer about $200 million annually. Congress originally intended that operating expenses and flood insurance claims be paid for through the premiums collected for flood insurance policies. Nfip borrows from the u.s. Treasury for times when losses are heavy, and these loans are paid back with interest. * The biggert–waters act of 2012 mandated that the nfip charge actuarial rates, resulting in a large rate increase for consumers.

* The program was first amended by the flood disaster protection act of 1973, which made the purchase of flood insurance mandatory for the protection of property within sfhas.

* in 1982, the act was amended by the coastal barrier resources act (cbra). The cbra enacted a set of maps depicting the john h. Chafee coastal barrier resources system (cbrs) in which federal flood insurance is unavailable for new or significantly improved structures.

* The national flood insurance reform act of 1994 codified the community rating system (an incentive program that encourages communities to exceed the minimal federal requirements for development within floodplains) within the nfip. The program was further amended by the flood insurance reform act of 2004, with the goal of reducing "losses to properties for which repetitive flood insurance claim payments have been made."

* The biggert–waters flood insurance reform act of 2012 (biggert-waters) modified the nfip. At the conclusion of 2011, as congress passed biggert-waters, the nfip cumulative debt was over $17 billion.[7] a core principle of biggert-waters was to change the nfip premiums to match actuarial risk-based premiums that better reflected the expected losses and real risk of flooding. These changes included removing discounts to many policies which were being sold below actual actuarial risk targets and eliminating "grandfathering" of older rates.

* In january 2014, the united states senate passed the homeowner flood insurance affordability act of 2014 (s. 1926; 113th congress). This bill changed the process used to alter subsidized premiums and reinstated grandfathering of lower rates; effectively delaying the increases in flood insurance premiums to obtain risk-based premiums under biggert-waters and spreading the cost of the lost premiums over all of the remaining policy holders.

* The national flood insurance program was $24 billion in debt at the beginning of 2014, and taxpayers will be forced to pay for any additional payouts until that situation is solved.

5.2.2: Federal Emergency Management Agency (Fema) Agency Overview | Formed | June 19, 1978; 37 years ago | Employees | 7,474 (october 8, 2011) | Annual budget | $10.9 billion (2012) | Agency executives | * W. Craig fugate, Administrator * Joseph Nimmich, * Deputy administrator | Parent agency | U.S. Department of homeland security |

The federal emergency management agency (Fema) is an agency of the United States department of homeland security, initially created by presidential reorganization plan no. 3 of 1978 and implemented by two executive orders on April 1, 1979.

* The agency's primary purpose is to coordinate the response to a disaster that has occurred in the united states and that overwhelms the resources of local and state authorities

* During the debate of the homeland security act of 2002, some called for fema to remain as an independent agency. Later, following the failed response to hurricane katrina, critics called for fema to be removed from the department of homeland security. Today fema exists as a major agency of the department of homeland security * Fema manages the national flood insurance program. Other programs fema previously administered have since been internalized or shifted under direct dhs control. * The governor of the state in which the disaster occurs must declare a state of emergency and formally request from the president that Fema and the federal government respond to the disaster. * The only exception to the state's gubernatorial declaration requirement occurs when an emergency and/or disaster takes place on federal property or to a federal asset * While on-the-ground support of disaster recovery efforts is a major part of fema's charter, the agency provides state and local governments with experts in specialized fields and funding for rebuilding efforts and relief funds for infrastructure by directing individuals to access low interest loans, in conjunction with the small business administration * Fema provides funds for training of response personnel throughout the united states and its territories as part of the agency's preparedness effort.

5.2.3: Concerned Laws * The homeowner flood insurance affordability act of 2014 (s. 1926; 113th congress) * biggert–waters flood insurance reform act of 2012 (biggert-waters) * flood insurance reform act of 2004 * national flood insurance reform act of 1994 * The coastal barrier resources act of 1982 (cbra) * Flood disaster protection act of 1973 * The national flood insurance act of 1968 (p.l. 90-448) * floodplain management ordinance

5.3: Standard Flood Insurance Policy

The standard flood insurance policy (sfip), issued by the federal emergency management agency (fema), specifies the terms, specifies the terms and conditions of the agreement of insurance between fema as the insurer and the named insured.

* Named insured in participating communities include- * Owners, * Renters, * Builders of buildings that are in the course of construction, * condominium associations, owners of residential condominium units, * mortgagees / trustees (applicable for building coverage only).

* Certain terms and conditions of flood insurance (e.g., mortgage clause, reformation of coverage) are unique to this policy.

* There are three policy forms– * The dwelling form, * The general property form, and * The residential condominium building association policy form.

Selection of the applicable form to be used is dependent on the type of insurable property to be covered.


The federal emergency management agency (fema) provides flood insurance under the terms of the national flood insurance act of 1968 and its amendments, and title 44 of the code of federal regulations (cfr).
We will pay you for direct physical loss by or from flood to your insured property-

if you:

1. have paid the correct premium;
2. comply with all terms and conditions of this policy;

3. have furnished accurate information and statements.

They have the right to review the information you give them at any time and to revise your policy based on our review.

Policy Covered

Against direct
Physical loss by
Or from flood

* Coverage a- building property * Coverage b- personal property * Coverage c- other coverage * Debris removal * Loss avoidances measures * Condominium loss assessment * Coverage d- increased cost of compliance * General( repair & reconstruction of stricter) * Limit of liability( up to $ 30000)

5.3.1: The Dwelling Form
This policy covers only:

* A non-condominium residential building designed for principal use as a dwelling place for one to four families, or

* A single-family dwelling unit in a condominium building

5.3.2: The General Property Form

This policy provides no coverage:

* In a regular program community, for a residential condominium building, as defined in this policy; and

* Except for personal property coverage, for a unit in a condominium building.

5.3.3: The Residential Condominium Building Association Policy Form * This policy covers only a residential condominium building in a regular program community. * If the community reverts to emergency program status during the policy term and remains an emergency program community at time of renewal, this policy cannot be renewed.

5.4: Terms & Conditions * Clause 1[exclusion] –

* They only provide coverage for direct physical lossby or from flood, which means that they do not pay you for:

1. Loss of revenue or profits;
2. Loss of access to the insured property or described location;
3. Loss of use of the insured property or described location;
4. Loss from interruption of business or production;
5. Any additional living expenses incurred while the insured building is being repaired or is unable to be occupied for any reason;
6. The cost of complying with any ordinance or law requiring or regulating the construction, demolition, remodeling, renovation, or repair of property, including removal of any resulting debris. This exclusion does not apply to any eligible activities that we describe in coverage d - increased cost of compliance; or
7. Any other economic loss.

* They do not insure a loss directly or indirectly caused by a flood that is already in progress at the time and date:

1. The policy term begins; or
2. Coverage is added at your request.

* We do not insure for loss to property caused directly by earth movement even if the earth movement is caused by flood. Some examples of earth movement that we do not cover are:
1. Earthquake;
2. Landslide;
3. Land subsidence;
4. Sinkholes;
5. Destabilization or movement of land that results from accumulation of water in subsurface land area; or
6. Gradual erosion.

* We do not insure for direct physical loss caused directly or indirectly by any of the following:
1. The pressure or weight of ice;
2. Freezing or thawing;
3. Rain, snow, sleet, hail, or water spray;
4. Water, moisture, mildew, or mold

* Clause2 [deductibles] A. When a loss is covered under this policy, they will pay only that part of the loss that exceeds your deductible amount, subject to the limit of liability that applies.

B. In each loss from flood, separate deductibles apply to the building and personal property insured by this policy.

C. The deductible does not apply to:
1. Loss avoidance measures;
2. Condominium loss assessments; or
3. Increased cost of compliance.

* Clause3 [concealment or fraud and policy voidance]

1. With respect to all insured under this policy, this policy:
A. Is void;
B. Has no legal force or effect;
C. Cannot be renewed; and
D. Cannot be replaced by a new nfip policy; if, before or after a loss, you or any other insured or your agent have at any time:
(1) intentionally concealed or misrepresented any material fact or circumstance;
(2) engaged in fraudulent conduct; or
(3) made false statements; relating to this policy or any other nfip insurance.
2. This policy will be void as of the date the wrongfulacts described in 1. Above were committed.
3. Fines, civil penalties, and imprisonment under applicable federal laws may also apply to the acts of fraud or concealment described above.
4. This policy is also void for reasons other than fraud, misrepresentation, or wrongful act.

* Clause4 [other insurance]

1. If a loss covered by this policy is also covered byother insurance that includes flood coverage not issued under the act, we will not pay more than the amount of insurance that you are entitled to for lost, damaged, or destroyed property insured under this policy subject to the following:
A. We will pay only the proportion of the loss that the amount of insurance that applies under this policy bears to the total amount of insurance covering the loss
B. If the other policy has a provision stating that it isexcess insurance, this policy will be primary.
C. When the other deductible amount is reached, this policy will participate in the same proportion that the amount of insurance under this policy bears to the total amount of both policies, for the remainder of the loss.
2. If there is other insurance in the name of your condominium association covering the same property covered by this policy, then this policy will be in excess over the other insurance.

* Clause4 [reduction and reformation of coverage]-

1. If the premium they received from you was not enough to buy the kind and amount of coverage you requested, they will provide only the amount of coverage that can be purchased for the premium payment they received.
2. The policy can be reformed to increase the amount of coverage resulting from the reduction to the amount you requested as follows:
A. Discovery of insufficient premium or incomplete rating information before a loss.
B. Discovery of insufficient premium or incomplete rating information after a loss.

* Clause5 [policy renewal]
1. This policy will expire at 12:01 a.m. On the last day of the policy term.
2. We must receive the payment of the appropriaterenewal premium within 30 days of the expiration date.
3. If we find, however, that we did not place your renewal notice into the u.s. Postal service, or if we did mail it, we made a mistake, e.g., we used an incorrect, incomplete, or illegible address, which delayed its delivery to you before the due date for the renewal premium, then we will follow these procedures:
A. If you or your agent notified us, not later than 1 year after the date on which the payment of the renewal premium was due, of non receipt of a renewal notice before the due date for the renewal premium, and we determine that the circumstances in the preceding paragraph apply, we will mail a second bill providing a revised due date, which will be 30 days after the date on which the bill is mailed.
B. If we do not receive the premium requested in the second bill by the revised due date, then we will not renew the policy. In that case, the policy will remain an expired policy as of the expiration date shown on the declarations page.
4. In connection with the renewal of this policy, we may ask you during the policy term to recertify, on a recertification questionnaire we will provide to you, the rating information used to rate your most recent application for or renewal of insurance.

* Clause6 [conditions suspending or restricting insurance]

We are not liable for loss that occurs while there is a hazard that is increased by any means within your control or knowledge

* Clause 7[ insurance companies options after a loss]
Options we may, in our sole discretion, exercise after loss include the following:

1. At such reasonable times and places that we may designate, you must:

A. Show us or our representative the damaged property;
B. Submit to examination under oath, while not in the presence of another insured, and sign the same; and
C. Permit us to examine and make extracts and copies of:
(1) any policies of property insurance insuring you against loss and the deed establishing your ownership of the insured real property;
(2) condominium association documents including the declarations of the condominium, its articles of association or incorporation, bylaws, rules and regulations, and other relevant documents if you are a unit owner in a condominium building; and
(3) all books of accounts, bills, invoices and other vouchers, or certified copies pertaining to the damaged property if the originals are lost.
2. We may request, in writing, that you furnish us with a complete inventory of the lost, damaged, or destroyed property, including:
A. Quantities and costs;
B. Actual cash values or replacement cost
C. Amounts of loss claimed;
D. Any written plans and specifications for repair ofthe damaged property that you can reasonably make available to us; and
E. Evidence that prior flood damage has been repaired.
3. If we give you written notice within 30 days after we receive your signed, sworn proof of loss, we may:
A. Repair, rebuild, or replace any part of the lost,
Damaged, or destroyed property with material or
Property of like kind and quality or its functional
Equivalent; and
B. Take all or any part of the damaged property at
The value we agree upon or its appraised value.

* Clause 8 [no benefit to bailee]
No person or organization, other than you, having custody of covered property will benefit from this insurance.

* Caluse9 [ loss payment ]

1. We will adjust all losses with you. We will pay you unless some other person or entity is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss (or within 90 days after the insurance adjuster files an adjuster’s report signed and sworn to by you in lieu of a proof of loss) and:
A. We reach an agreement with you;
B. There is an entry of a final judgment; or
C. There is a filing of an appraisal award with us, as
Provided in vii.p.
2. If we reject your proof of loss in whole or in part you may:
A. Accept our denial of your claim;
B. Exercise your rights under this policy; or
C. File an amended proof of loss, as long as it is filed within 60 days of the date of the loss.

* Clause 10 [abandonment]
You may not abandon to us damaged or undamaged property insured under policy. * Clause11 [salvage]
We may permit you to keep damaged insured property after a loss, and we will reduce the amount of the loss proceeds payable to you under the policy by the value of the salvage.

* Clause12 [mortgage clause]

The word "mortgagee" includes trustee. Any loss payable under coverage a - building property will be paid to any mortgagee of whom we have actual notice as well as any other mortgagee or loss payee determined to exist at the time of loss, and you, as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of
Precedence of the mortgages.

* If we deny your claim , that denial will not apply to a valid claim of the mortgagee, if the mortgagee:
1. Notifies us of any change in the ownership or occupancy, or substantial change in risk of which the mortgagee is aware;
2. Pays any premium due under this policy on demand if you have neglected to pay the premium; and
3. Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so. All of the terms of this policy apply to the mortgagee .the mortgagee has the right to receive loss payment even if the mortgagee has started foreclosure or similar action
On the building. * If we decide to cancel or not renew this policy, it will continue in effect for the benefit of the mortgagee only for 30 days after we notify the mortgagee of the cancellation or nonrenewal. * If we pay the mortgagee for any loss and deny payment to you, we are subrogated to all the rights of the mortgagee granted under the mortgage on the property. Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee's claim. * Clause14 [suit against insurance company]

You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. If you do sue, you must start the suit within 1 yearafter the date of the written denial of all or part of the claim, and you must file the suit in the united states district court of the district in which the insured property was located at the time of loss. This requirement applies to any claim that you may have under this policy and to any dispute that you may have arising out of the handling of any claim under the policy

* Caluse15 [ subrogation]

Whenever we make a payment for a loss under this policy, we are subrogated to your right to recover for that loss from any other person. That means that your right to recover for a loss that was partly or totally caused by someone else is automatically transferred to us, to the extent that we have paid you for the loss. We may require you to acknowledge this transfer in writing. After the loss, you may not give up our right to recover this money or do anything that would prevent us from recovering it. If you make any claim against any person who caused your loss and recover any money, you must pay us back first before you may keep any of that money.

* Clause16 [loss settlement]

This policy provides three methods of settling losses:

* Replacement cost, * Special loss settlement * Actual cash value.

* Replacement cost loss settlement applies to a single-family dwelling provided:
(1) it is your principal residence, which means that, at the time of loss, you or your spouse lived there for at least 80 percent of:
(a) the 365 days immediately preceding the loss; or
(b) the period of your ownership, if you owned the dwelling for less than 365 days; and
(2) at the time of loss, the amount of insurance in this policy that applies to the dwelling is 80 percent or more of its full replacement cost immediately before the loss, or is the maximum amount of insurance available under the nfip.

* Special loss settlement applies to a single-family dwelling that is a manufactured or mobile home or a travel trailer. * Actual cash value loss settlement applies to a single-family dwelling not subject to replacement cost or special loss settlement, and to the property.

5.5: criticism

5.5.1: Hurricane Andrew – 1992
In august 1992, hurricane andrew struck the florida and louisiana coasts with 165 mph (265 km/h) sustained winds. Fema was widely criticized for its response to andrew, summed up by the famous exclamation, "where in the hell is the cavalry on this one?" by kate hale, emergency management director for dade county, florida. Fema and the federal government at large were accused of not responding fast enough to house, feed and sustain the approximately 250,000 people left homeless in the affected areas. Within five days the federal government and neighboring states had dispatched 20,000 national guard and active duty troops to south dade county to set up temporary housing. This event and fema's performance was reviewed by the national academy of public administration in its february 1993 report "coping with catastrophe" which identified several basic paradigms in emergency management and fema administration that were causes of the failed response.

5.5.2: Hurricane Katrina – 2005
Fema received intense criticism for its response to the hurricane katrina disaster in august 2005. Fema had pre-positioned response personnel in the gulf coast region. However, many could not render direct assistance and were only able to report on the dire situation along the gulf coast, especially from new orleans. Within three days, a large contingent of national guard and active duty troops were deployed to the region.
The enormous number of evacuees simply overwhelmed rescue personnel. The situation was compounded by flood waters in the city that hampered transportation and poor communication among the federal government, state and local entities. Fema was widely criticized for what is seen as a slow initial response to the disaster and an inability to effectively manage, care for and move those trying to leave the city.

5.5.3: Criticism of Adverse Selection * Flood insurance for properties in flood prone areas is mandatory only to secure loans, which makes it somewhat more likely that flood prone properties will be owned by seniors who have paid off their mortgages, or investors who have acquired the property for rental income. * Flood insurance only covers losses for the owner of the property, and claims are subject to caps, which further increases the likelihood that the property will be occupied by renters rather than the property owner. * Flood prone properties are more likely to be offered for rent because of the owners' increased risks and/or costs associated with occupying the property themselves. * Flood prone properties are more likely to be offered for rent at a discount, which attracts lower income groups, seniors, and infirm groups.

Chapter 6
Startup of Flood Insurance in Bangladesh

Chapter 6: First Flood Insurance Program

First Ever Flood Insurance Scheme Launched In Bangladesh

Oxfam Bangladesh has initiated the pilot project to design a commercially pragmatic catastrophic flood insurance scheme for the poor and vulnerable -
Aiming to compensate flood victims and help them fight natural disasters, the country’s first ever flood insurance scheme was launched.
Organised by the Oxfam Bangladesh, the programme was titled “launching ceremony on index based flood insurance product piloting in sirajganj, Bangladesh.”
Oxfam bangladesh has initiated the pilot project to design a commercially pragmatic catastrophic flood insurance scheme for the poor and vulnerable, targeted to sensitise investors, who are working in flood-prone areas.
Poor and vulnerable people in the river basin areas of sirajganj district come under an index-based flood insurance scheme to enhance the disaster risk reduction programmes in the flood-prone regions.
With a fast pay-out feature for the flood-hit people, the index insurance product will cover 1,661 poor families of 14 villages located in sirajganj sadar and chowhali upzilas of the district on a pilot basis.
The scheme aims to provide cash relief of up to tk8,000 per household in an event of catastrophic flood. Mobile money transfer will also be introduced soon to transfer the money to the beneficiaries even faster. Earlier, a collaborative design and research study was conducted by oxfam and india-based center for insurance and risk management (cirm), for developing flood insurance scheme in bangladesh.
A flood hazard model, built by the institue of water modelling (iwm) of bangladesh will be used to generate flood data while the swiss development corporation (sdc) will finance the project.
Initiated by Oxfam, the cirm advisory services (india), iwm, pragati insurance ltd (Bangladesh), swiss re, manab mukti sangstha and palli karma sahayak foundation will jointly implement the project.
This flood insurance programme has been a multi-stakeholder effort, using cutting-edge expertise within bangladesh and internationally. Pragati is the insurance company issuing the policy in Bangladesh, and swiss re re-insures and provides technical support. This private sector insurance mechanism transfers risk to global capital markets, so that payouts can be made promptly and consistently when a major flood happens in Bangladesh.
The flood hazard model was developed and implemented by the institute for water modeling in Bangladesh, together with the centre for insurance and risk management in india. The programme was supported by funding from the swiss agency for development and cooperation (sdc).
Oxfam do not expect them to pay premiums in this programme. This insurance is not aimed directly at individuals, but at organizations that serve them, e.g. Local and national government institutions, community-based organizations, and companies working with the communities. Currently, the policyholder is a community-based organisation, manab mukti sangstha, that works closely with local people in sirajganj district. Oxfam and sdc have been supporting the premiums so far.
Unlike micro-insurance, which is aimed at individuals, this kind of insurance is known as meso-insurance. Such meso-insurance uses existing organisations to reach people more effectively. These organisations are deeply engaged with people in the community and have a shared interest in people having more secure livelihoods through insurance.

Chapter 7
Current Flood Insurance Overview in Bangladesh

Chapter 7: Current Overview Of Flood Insurance In Bangladesh

Organizations of flood insurance policy holders demonstrated different motivations depending on their nature of operation. Micro-credit providers primarily indicated social concern as prime motivation in considering offering micro flood insurance. Several micro-credit providers mentioned that they have been considering to offer disaster micro-insurance for crops in order to meet their social objectives of agricultural and rural development of the country even though the affordable premium rate for such insurances are too low to ensure financially viability. However, the mainstream private insurance companies indicated a conventional motivation of profit maximization. This should come as no surprise considering that such companies are owned by shareholders who scrutinize financial performance as it relates to share price. Although target clients of insurance providers include both rural and urban poor, it has been observed that mainstream insurance companies usually give priorities to clients with regular income flows, thus precluding individuals with irregular or seasonal income.

The empirical results presented in the previous section and the summary discussion from the kis, indicate that the prospect of a micro flood insurance market in bangladesh is not overwhelmingly positive. One of the key challenges faced by the policy makers in this context is financial viability in terms of cost recovery per insurance contract. Especially for the most popular insurance product, crop insurance, a financially viable market hardly exists in any part of the country under any institutional framework. Given the profit maximization motivation demonstrated by the private insurance companies, it is highly unlikely that micro flood insurance could be introduced under private provision. Micro-credit providers are willing to offer an affordable insurance scheme in order to attain their social objectives of agricultural and rural development, but the longer term sustainability of such an insurance scheme without any government subsidy is highly dubious.

Nearly 30 years ago a multiple peril crop insurance program under public provision in a fs institutional setup was introduced in bangladesh which covered crop damage risk of 15,420 farmers during the period of its operation. The insurance program was commercially unsuccessful as claims consistently exceeded premiums. In ten of the seventeen years of operation of the public crop insurance program, the loss ratio exceeded by 400%.empirical evidence presented in the previous section of this is not strikingly different than what was experienced in practice thirty years ago. Therefore, the question that arises at this point is whether such an insurance program should be thrown overboard on the basis of the failure to meet the cost recovery criteria or should be promoted at the cost of tax payers’ money by providing bulk subsidies to the insurance providers.

Debate persists in welfare literature concerning the issue of whether risk management should be considered as an individual responsibility or social responsibility. The debate is mainly philosophical and falls beyond the scope of an economic analysis. Nevertheless, it is worth mentioning that dworkin (2000), in his widely cited philosophical theory of hypothetical insurance scheme, strongly emphasises on state management of risk through the provision of insurance to ensure egalitarian justice in the society. Dworkin’s (2000) theory, however, has been criticised as an ineffective theory of social justice on the ground that such theory is unable to address the issue of trade-offs that arises in practical non-ideal societies facing resource scarcity (farrelly, 2007). As economists, we take a stance that falls somewhere in between these two extreme views. We advocate for state subsidy to support a micro flood insurance market but at the same time we strongly argue that the extent of the support provided by state subsidy should be limited to a realistic level. For example, financing a 400 per cent loss ratio from public subsidy on a continuous basis could not be a realistic economic policy. Therefore, an institutional design needs to be developed that ensures least cost provision.

In addition to state subsidy, the donor transfer may play a key role in ensuring cost recovery. An examination of annual reports from micro-credit providers that are currently offering micro-insurance products of some kind revealed that the providers receive a large amount of donations in terms of direct financial transfers. Such transfers may affect financial viability through direct financial transfers to “top up” premiums which may allow insurers to offer the product to clients at a lower cost.

Chapter 8
Comparative Analysis Between
Bangladesh & USA

Chapter 8: Comparative Analysis On Flood Insurance Perspective Between Bangladesh And Usa

Analysis On Bangladesh

Weather related risk is a major source of income fluctuations for rural households in bangladesh. Both coastal as well as inland inhabitants face natural disaster risks due to its geographical location and very low land elevation. Catastrophic events like riverine floods and coastal cyclones cause asset loss, crop damage, unemployment, diseases and fatalities once in every five to ten years. Following the overwhelming success of micro-credit in bangladesh, there is a growing optimism in micro-insurance solutions to protect rural households from income shocks resulting from catastrophic risks. An important aim of the proposed disaster micro-insurance is to spread the risks of natural disasters, especially for the poor counterpart of the population, in order to better prepare them to cope with increased climatic disasters such as floods, cyclones and storm surges. Whilst the use of micro-insurance to cover life and health risks is prevalent to some extent, the use of micro-insurance to hedge against natural disaster losses in rural areas of bangladesh is still only emerging. The national adaptation program of action, prepared by the ministry of environment and forests (2005), suggests exploring options for spreading natural disaster risks by investigating the potential of a flood insurance market as an important alternative poverty alleviation and natural disaster risk coping strategy.

Distribution of sample across different districts with different risk levels

After a detailed description of the hypothetical flood insurance program, respondents were first asked whether or not they were willing to buy insurance in principle to reduce the risk of various types of flood damage. 51 per cent (n=1240) of the 2400 respondents said ‘yes’ to the first wtp question. A majority (45%) of those who were not wtp for flood insurance in principle indicated lack of money income as the most important reason. A considerably high number of respondents (n=366 or 31%) refused to buy flood insurance, because they disliked the stated terms and conditions of the proposed insurance schemes. Other reasons for not wanting to participate in a flood insurance scheme included “i am unable to assess the usefulness of such an insurance scheme (7%)” and “i do not believe that i will actually be compensated (5%)”.

Percentage of households suffering from flood at different inundation levels

Average disaster flood damage incurred by floodplain households, distinguishing between different damage categories.

Analysis on usa

The evaluation of the national flood insurance program was a major project initiated by fema in 2000 to review the progress of the nfip in working toward achieving its legislative mandate and to obtain recommendations for future actions and policies that would enhance the nfip. It was completed in 2006, and all of the evaluation research papers are publicly available online.

The administrator of the nfip is fema, which has established a comprehensive regulatory structure setting forth the rights and responsibilities of insured’s and insurers under the nfip. The subsequent creation of the wyo program allowed private-sector insurance companies to issue standard government policies and collect policy premiums.
Under the wyo program, private-sector insurance companies essentially become fiscal agents of the united states.
At times, government emergency aid is available to disaster victims after a flood event. As a result, a misconception arises in the public’s perception that the purchase of flood insurance is not necessary because money from disaster aid programs will be available to bail them out. That viewpoint may have been burnished further, in part, by the widely publicized large amounts of government aid made available to victims in the wake of hurricane events that have occurred since hurricane katrina made landfall in 2005.

Excluding the aid available through the nfip’s enabling statute and the statutes that have modified it since, other government assistance, when and if available, comes primarily in the form of low-interest loans that must be repaid. The u.s. Small business administration may make federally subsidized loans to repair or replace homes, personal property, or businesses that sustained damages not covered by insurance. Disaster grants and housing from fema might be available to meet serious disaster-related needs that are not met in other ways, including but not limited to:
 temporary housing,
 repairs to or replacement of damaged property,
 medical costs,
 clothes and household items,
 limited disaster grants.
In addition, there are a number of nfip special-purpose programs, under which buildings can be insured using rates that are not or cannot be actuarially calculated. These include:
 the emergency program allows property owners in communities that are in the process of applying for nfip participation to obtain coverage. As a general rule, those communities do not yet have firms in effect. While the premium rates are low, the allowed coverage is limited and temporary. The emergency program generally has accounted for a tiny proportion—currently less than 1 percent—of the in force policy base.
 group flood contracts are issued by the nfip in response to presidential disaster declarations.175 states may apply for a group nfip policy, under which property owners who are disaster recipients may apply for a variety of limited coverage options with low premium rates. Group flood contracts have three-year policy terms and are the only non-one-year policy contracts within the nfip. Such contracts generally cannot be renewed.

Flood insurance subcommittee monograph

The mortgage portfolio protection program (mppp) was introduced on jan. 1, 1991, as a tool to assist the mortgage lending and servicing industries in bringing their mortgage portfolios into compliance with the flood disaster protection act of 1973, which established mandatory purchase requirements.176 the mppp is intended to be used by lenders as a last resort to force-place coverage when a borrower cannot or will not purchase the policy directly.

Cross tabulation results between flood insurance familiarity and insurance participation decision of bangladesh and usa

Familiarity With Insurance | Criteria | Buy flood insurance | | | Bangladesh | Usa | | | No | Yes | No | Yes | | Not familiar at all | 78% | 22% | 80% | 20% | | Not familiar | 70% | 30% | | | | Somewhat familiar | 40% | 60% | | | | Familiar | 30% | 70% | | | | Completely familiar | 25% | 75% | | | | Total | 48% | 52% | 80% | 20% |

Chapter 9

Chapter 10: Conclusion

Our empirical investigation emphasizes that we have addressed the issue of motivation of the two key players in micro insurance sector in Bangladesh in a series of key informant interviews. In view of the fact that micro-credit providers indicated their interest in offering an affordable insurance scheme and the large inflow of foreign donation in this sector which helps to top-up insurance premium, microcredit providers appear to be more competent than private insurance providers in offering potential micro flood insurance. Micro-credit providers, furthermore, have greater access to the client base, better infrastructural facilities all over Bangladesh, a greater degree of trust and reliability among the clients and pre-existing information on client portfolios. Potential insurance clients, on the other hand, showed strong preference for public provision of flood insurance indicating a higher degree of trust in the public sector relative to the private sector.

On the other hand, in usa, because the peril of flood was deemed uninsurable by the private sector insurance market, the federal government established the national flood insurance program (nfip) to provide flood insurance coverage to property owners. The complexity of the nfip, combined with the perception of its selective impact, creates a dilemma. critical factors such as coastlines, rivers and streams, building construction and the use of land, the scientific understanding of hydrology, and the technologies used to measure and address flood risk constantly are changing, creating opportunities for constructive Nfip reform.

In order to meet both the demand and supply criterion assessed through the current case study, a partnership of public sector and the micro-credit providers seems the most suitable institutional set-up in the context of Bangladesh as it will ensure both higher insurance take up and lower administrative cost of operation.


1.Website of Fema 2. Dhaka Tribune Website

3. Project Paper of PREM on Flood Insurance…...

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...Beeston, Nottingham, NG9 1LQ Introduction Flood insurance is becoming increasingly popular here in the UK, as flooding is becoming more common in specific areas, given the climate change recently. There are many reasons for floods, such as river bursting its banks, an example being the houses near the Thames river being prone to flooding due to the likelihood that it could burst it banks after a period of heavy rainfall. Problems like this can occur up near Trent Road, Beeston as it is near the River Trent, so I am writing this report for Anna Yang so she can think about what factors to take in account when thinking about buying a house. Should Anna be worried about the risk of flooding on Trent Road, Beeston? According to the Environment Agency, (Environment Agency, 2014) Trent Road in Beeston is located in a Flood Zone 3 area, which means the yearly probability of the river flooding is 1 in 100, or greater than 1%. If Anna were to stay in the house for ten years, it would have a probability of flooding ranging from 9.6% to 28.5%. (Diacon, S. 2014) The probability is expressed as a range due to the fact that it would always be uncertain to some degree as the climate change in the UK changes so regularly, and also flood risk simulation model that the Environmental Agency use has some uncertainty too, as it too is dependent on the climate, and how often it rains, so they can warn people to take action or not. In comparison, insurance companies would also have......

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Insurance Background

...Background of insurance industry of bd Insurance is not a new idea or proposition to the people of Bangladesh. About half a century back, during the British regime in the then India, some insurance companies started insurance business, particularly life, in this part of the world. Since 1947 until 1971 insurance business gained momentum in this part of what was then known as East Pakistan. There were about 49 companies transacting both life and general insurance business. These companies were operating under a free competitive economy. After the emergence of the People’s Republic of Bangladesh in 1971, the government, in order to make available the fruit of liberation to the general mass, nationalized the insurance industry along with the banks in 1972 by Presidential Order No. 95. By virtue of this order, save and accept postal life insurance and foreign life insurance companies (other than the Pakistani companies), all companies and organization transacting all types of insurance business in Bangladesh came under this nationalization order. At the same time, five insurance corporations were initially established by the Government, viz, Jatiya Bima Corporation (National Insurance Corporation), Teesta Bima Corporation (Teesta Insurance Corporation), Karnaphuli Bima Corporation (Karnaphuli Insurance Corporation), Rupsa Jiban Bima Corporation (Rupsa Life Insurance Corporation), Surma Jiban Bima Corporation (Surma Life Insurance Corporation). On 14th May, 1973 the Insurance......

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