Whether Public or Private, Flood Insurance Is a Must, Experts Say

Tropical Storm Imelda hit the Texas Gulf Coast on Sept. 17, 2019, as a fairly low-level tropical storm but that doesn’t mean it was an inexpensive one in terms of property damage, especially with regard to flooding.

Imelda drenched Southeast Texas for three days, saturating some areas with as much as 43 inches of rain. The National Flood Insurance Program (NFIP) paid out around $738 million on 11,000 claims from Imelda, according to Butch Kinerney, branch chief, National Flood Insurance Marketing and Outreach, for the NFIP. By contrast, the NFIP paid out $737 million on 16,000 claims from Hurricane Florence, a category 1 storm that made landfall on the coast of North Carolina in September 2018.

Kinerney, moderator of a panel discussion, Communicating the Value of Flood Insurance Throughout the Hurricane Season, as part of the National Hurricane Conference held virtually in early June, said while 2019 was a relatively quiet year flood-wise, the NFIP still paid out $1.47 billion on 35,004 claims. In 2018, approximately 42,500 claims resulted a $1.53 billion payout for the program.

The NFIP has “about 5 million flood insurance policies in force nationally. We are in every state, every territory, every tribal nation. We are in more than 23,000 participating communities nationwide. We cover $1.3 trillion in assets, all against flood. About 95% of our policies are residential and about 5% of our policies are nonresidential,” Kinerney said.

As of early June 2020, the NFIP had received 3,143 claims representing a little more than $44 million in payments to policyholders.

It doesn’t have to take a tropical storm or a hurricane to generate enough water to cause a flood event, however. Heavy rains, dam failures, excessive property development in highly populated areas, and even construction projects that temporarily alter water drainage routes can be catalysts for movement of water on the ground that results in property damage. That’s why it’s so important to be insured against flood damage, Kinerney said.

Many property owners are unaware that the standard homeowners policy does not offer coverage for flood damage, said panelist Mark Friedlander, director of Corporate Communications for the Insurance Information Institute (I.I.I.). Water that leaks through a roof or falls from a faulty air conditioning system, for instance, would be covered but “water that comes from the ground up and floods your home requires flood insurance,” he said.

Of the more than 200,000 homes that flooded during Hurricane Harvey, three-quarters of them did not have flood coverage, Friedlander added.

“It’s a very difficult conversation to have with a survivor or homeowner when they didn’t take that opportunity to purchase flood insurance,” said Jason Hunter, branch chief, Floodplain Management and Insurance FMI Branch of FEMA Region IV Atlanta.

There are various types of policies available through the NFIP, and they are generally affordable, Hunter said. The program offers residential coverage, nonresidential or commercial coverage, content coverage for renters, and condominium coverage. A condominium association can purchase a policy for each unit in the building and the people who occupy the units can purchase content coverage.

“For residential coverage, the limits are $250,000 for the building and $100,000 for the contents. For nonresidential structures, it’s $500,000 for the building and $500,000 for the content,” he said.

“There are various factors that go into the rating of a policy,” Hunter said. But someone located outside of a special flood hazard area right now can get a preferred risk policy from the NFIP for around four hundred to five hundred dollars. “When you get into the various [designated] flood zones … that amount will probably go up,” he said.

But the NFIP is not the only game in town. The private flood insurance market is an emerging one and “everyday they’re offering more and more coverages,” said Caitlin Connor, flood strategy coordinator with Johnson & Johnson Insurance in Tampa/St. Petersburg, Florida. The risk modeling systems used by the private flood market differ from that of the NFIP, which relies heavily on flood zone maps. Private flood insurers are “using more modern technology to identify risk. … In a few clicks now agents can get a rate … that’s something new,” Connor said.

“When it comes to coverages, the limits can be higher,” she added. Not every home is valued at $250,000, which is the limit for the NFIP residential policy. Houses can cost much more than that to replace. In the private market, coverage can go as high as $5 million, including content replacement costs, she said.

The private flood market can provide more robust coverage with higher limits and it can be less expensive than the NFIP. “But the private market is not trying to take all of the risk and there are clients out there … that should stay with the NFIP,” Connor said. For instance, policyholders with NFIP subsidies could lose by moving to the private market.

“One of the other advantages that consumers are seeing with private market flood insurance is a less than a 30-day waiting period [which is required by the NFIP]. That’s another issue that consumers don’t understand,” said Friedlander. “You can’t go out and buy an NFIP policy for a storm that’s coming this weekend. But there are some private insurers that have a much [shorter] grace period for the policy to take effect … that has been an advantage for the market.”

For some private insurers, the waiting period may be seven to 10 days, for others, 14 days.

“So there is a possibility to get coverage sooner, but it can’t wait until the storm watch, the hurricane watch is underway, because not only is there a waiting period, there’s also going to be a moratorium on making changes to a property policy,” Friedlander said.

A 2019 report on the private flood insurance market by Wells Media’s Research & Trends division found private flood insurers reported total direct premiums written of $681 million in 2018, an increase of $51 million over 2017. The majority of the growth was in commercial flood insurance.

The Wells Media report shows that 30% of the U.S. private flood market is written in seven Gulf and Atlantic coast states identified by CoreLogic as having the highest potential for storm surge damage: Florida, Louisiana, Texas, Virginia, South Carolina, North Carolina and Georgia.

In a typical year, the average loss per property for flood is about $45,000, I.I.I.’s Friedlander said. For Hurricane Harvey, which devastated coastal Texas in 2017, the average flood loss was nearly $117,000 per property. So, ask homeowners: Can they “afford $45,000, let alone $117,000, versus spending an average of $700 premium for NFIP policy?”