The Dangers of Ignoring Flood Insurance—How Will Your Family Recover?
Why Everyone Should Consider Purchasing a Flood Insurance Policy
Why are there still so many uninsured property owners despite the extreme flood events seen in Houston, along the Atlantic Coast and last spring in the Midwest? Why is there still a protection gap leaving over 80% of properties uninsured? Flood insurance remains one of the most misunderstood programs despite all the information at our fingertips. The stakes are high when as little as one inch of flood water can do $25,000 of damage and yet property owners still choose to leave their flood risk up to chance?
We feel it is important for everyone to learn the facts about flood insurance —to make informed decisions about their coverage and avoid the risk of being left without a path to recovery after a flooding disaster.
How Flood Insurance Works and Types of Flood Insurance Options
In today’s marketplace flood insurance is mostly one of three types: NFIP Flood, Excess Flood and Private Flood. Flood insurance is an additional policy purchased to provide financial resources to assist with recovery after a flood loss. Other property policies exclude flood damage as a rule.
The following are the types of flood insurance coverage available:
- NFIP policies: The National Flood Insurance Program (NFIP) is a federal program established by Congress forming the backbone of flood protection in the US. For more than 30 years the NFIP has been the only flood insurance available to all properties in participating communities, regardless of flood risk. Premiums are generally based on flood zone designations on FEMA published flood zone maps, but these can be difficult for communities to keep accurate and up to date. The NFIP offers a discounted premium policy for properties in the Preferred Risk flood zones and for properties impacted by a recent flood map change moving them to high risk areas on the flood map. Congress has ordered the premium subsidies offered to about 20% of NFIP policies to be reduced resulting in subsidized policy premiums escalating annually subject to an 18% cap for primary residences. Business and secondary residences with subsidized rates are slated by the flood reforms to rise 25% annually.
- Excess flood insurance: Offered by private flood insurance carriers, excess flood follows the same policy form as the NFIP policy but offers higher limits to cover properties with building replacement cost values over $250,000 and contents over $100,000; that is, the established maximum coverage limits offered by the NFIP policy
- Private flood insurance policies: As technology advancements make flood risk easier to define and subsidized NFIP premiums increase closer to risk-based levels, private flood insurance carriers have begun slowly inching back into flood insurance marketplace. New and innovative private flood policies are now being introduced to provide better coverage types; like additional living expenses, higher limits to cover rising property values and simplified applications without waiting periods or elevation certificates that are more readily understood. Most private flood carriers determine flood risk using proprietary risk modeling programs that develop a flood risk profile for each property and establish their underwriting criteria to accept the risks they can best define. Buyers can now choose among various policies that resemble NFIP plans, ones more like homeowner’s coverage, endorsements added to homeowners policies, and even customizable, flexible policies, allowing mix and match coverage to include contents, additional structures, full replacement cost and even resiliency coverage that can rebuild with flood resistive materials.
What Flood Risk Means Today and Where Misconceptions Occur
With flood insurance readily available across the country why are so many properties still not covered? Flood risks are changing. We see land development, extreme weather events, aging dams and levees and warming oceans all making flood risks stronger but long held urban myths are hard to overcome. With only 15% of Americans covered by flood insurance according to the Insurance Information Institute, it’s important for those without coverage to understand the truth behind these misconceptions and realize the risk they are taking by not properly insuring their homes.
Changing weather patterns and hotter summer temperatures have brought more frequent flood events. Flooding from major storms in 2019 has already topped $3 billion, according to the National Oceanic and Atmospheric Administration (NOAA). River flooding, flash thawing and floods following wildfires, among other natural disasters and events, are bringing devastation to urban and rural areas across wide geographic areas — including those not typically thought of as “flood prone.”
Furthermore, new residential and commercial developments around major population centers are reshaping the nation’s flood plains. The concrete from these developments does not absorb water like the original geography, which makes these expanding communities even more susceptible to damage from flooding.
As a result, flooding has become increasingly common over the past few decades, and many areas around the country have been severely affected. Flooding is so prevalent, and the damage created has been so vast that, according to FEMA, the average payment on NFIP flood insurance claims over the past five years was $56,254.
Despite the increased risk, people continue to forego coverage for the nation’s number one weather related disaster. Insurance Business magazine reported that in the wake of Hurricane Harvey, between 70% and 80% of owners whose properties suffered flood damage did not have coverage and were located in “low risk flood zone areas” …based on estimates by CoreLogic and former Texas insurance commissioner Robert Hunter.
New home buyers should make flood insurance decisions based on the personal resources available to recover but it has become common practice to rely on the mortgage lenders’ requirements or the real estate advertising instead. False messages indicating when flood insurance “is required”, and when it is not, occur when buying a home, or when the FEMA flood map changes or when a community enacts flood maps or considers need for drainage improvements—and all of these contribute to this misunderstanding. Only the property owner understands if household savings can cover an unexpected flood recovery. Only the homebuyer knows if a flood policy remains valuable after a flood map change or if their flood risk remains high despite a line on the map. Lending regulations protect the bank, but flood insurance protects the homeowner from unexpected loss.
The Geography of Flood Risk: Everywhere is Affected
The danger of flood loss isn’t just confined to the coasts. In reality, every part of the country has its own type of prevalent flood risk and the data exists to prove it. Nearly all U.S. counties – 98% – have been affected by flooding.
When you buy a home or review your insurance coverage be sure to ask about your flood risk and the cost to purchase a flood policy. Flood risks are based on location as well as the structure’s characteristics. In fact, your Insurance agents’ responsibility to protect your property through property coverage should always include a flood insurance offer, simply because most other insurance policies exclude flood loss. Flood insurance is a separate policy purchased to cover only the peril of flood and is not covered by traditional homeowners’ insurance. Following are a few of the factors that can lead to flooding and the resulting property damage:
- Coastal location: Coastal communities are subject to rainfall flooding as well as storm surge flood risk and often were not built to resist flooding. Even sunny day flood events are becoming common along the coast. Regardless of flood zone or proximity to coast these properties need flood insurance.
- Riverside communities: Development along riverbanks have historically confined rivers and removed the natural barriers that once protected communities.
- Dams, Levees and Seawalls: Dams and levees designed to protect communities are now aging beyond their useful life and not designed to heights that would be required if built today. Flood insurance is the only protection when a levee or dam is breached or overtopped.
- Extreme rainfall: Warmer atmospheric conditions and changing wind patterns have been proven to bring extreme rainfall to areas in historic proportions with increasing frequency.
- Under-capacity water drainage: Often a result of over development in a community or poor floodplain management.
- Wildfire area risk: Wildfires cause burn scarring that harden the ground layer resulting in flash flooding and mudflow runoff events for many years to come.
How to Determine Your Flood Risk
Traditionally, most property owners’ first step to determine flood risk has been to consult FEMA’s flood zone maps—but these don’t tell the whole flood risk story. Flood maps are based on historic information but give no consideration to future risks like storm surge or climate change and often are not up to date. Mother Nature doesn’t follow flood maps and flood events can occur wherever it can rain.
But, currently, new technology in scientific flood risk modeling starts with historic flood data then incorporates third-party property data, satellite imaging and elevation technology to assess flood risk. Private flood carriers use this method to rate their policies without burden of inaccurate flood maps for costly elevation certificates. And owners can now tap into these much easier and accurate methods simply by reaching out to a trusted insurance agent for a private flood insurance quote
All these point out why it’s important to discuss flood risk and potential coverage options with your local insurance agent. No matter where you live, it’s important to consider your flood insurance options and how the right coverage can help protect your future.
The Future of Flood Insurance
While the NFIP has served Americans well, significant reforms are needed to modernize the program. The good news is, those reforms are on the horizon. FEMA is beginning to include new technologies in the 2.0 version of its risk rating system now due to be released in October of 2021. Risk rating 2.0 will also seek to improve flood risk mapping, simplify rating and application processes and tie policy premiums to each properties’ flood risk.
In the Flood Insurance Marketplace, insurance providers such as Wright Flood are adding more private flood policy options while acknowledging that NFIP flood insurance will continue to play a critical role. Private flood carriers work to assure the greatest number of property owners can be protected for flood loss and recover much quicker than uninsured citizens. Expanding the flood insurance choices and offering customizable policy types within the flood insurance marketplace can play an important role in closing the flood insurance protection gap.
As flooding becomes more prevalent and occurs more regularly throughout the year, it will be key for property owners to value the protection offered to them by flood insurance. When protecting their family’s future or when buying a new property, everyone should be prepared for future flood events seeking out the right flood coverage options to assure their personal recovery— whether it be an NFIP policy, excess coverage or a private policy.
To get a policy that is right for you, reach out to a Wright Flood agent with full knowledge of the types of flood coverage available for your property and protect your most valuable asset with a plan from the top flood insurance provider in the industry.