Note: This guest post is by David A. Thompson, CPCU, AAI, API, CRIS.
Did you know that floods, not hurricanes, are the most common and costliest natural disaster? One report stated that nearly 90 percent of natural disasters involve flooding, and since 2000, flooding has cost American taxpayers $850 billion. A large majority of floods are uninsured. Over 75 percent of flood damage from Hurricanes Irma and Harvey in 2017 was uninsured. Hurricane Ian 2022 made landfall in the Lee County (Ft. Myers) area. Data from FEMA showed that only 30 percent of properties in that county had flood insurance, and surprisingly, only 50.4 percent of structures in high-risk flood zones were protected by flood insurance through the National Flood Insurance Program (NFIP).
If a structure is secured by a federal lender in a high-risk zone, flood insurance is required as a condition of the loan. This means that owners of these high-risk structures had no mortgages and chose not to purchase flood insurance. Just six weeks after Hurricane Ian made landfall, FEMA had received over 43,000 claims. Their data showed that during Hurricane Ian’s path in Florida, only about 20 percent of flooded structures were protected by flood insurance. In central Florida, over 70 miles from the coast, rainfall exceeding 15 inches caused widespread flooding.
Flooding comes from a variety of sources, and it is not limited only to those living in coastal areas. In recent years, there have been severe flood losses in Tennessee, Oregon, West Virginia and Las Vegas. In Death Valley, California, in the year 2022, just 1.7 inches of rain in a three-hour period caused massive damage in one of the driest places on Earth; dozens of cars sat in about three feet of mud. Flooding occurs from storm surges in hurricanes, overflowing rivers, and very commonly in Florida (as well as throughout the country) from the rapid accumulation of water from a thunderstorm. Some areas are known to flood after what appears to be just a little rain.
A large majority of communities in the United States participate in the NFIP. Every structure is in a flood zone, it’s just a matter of what the specific zone is. High-risk zones begin with the letters A or V, while low- to moderate-risk zones include zones B, C, and X. Too many consumers think, “I’m not in a flood zone,” but they are. The confusion likely comes from the requirement that any structure located in a high-risk zone must be protected by flood insurance if there is a lender involved. Confusing “require flood insurance” with “should have flood insurance” is common. Also remember that FEMA data has shown for decades that about 25 percent of all dollars paid under the NFIP go to those structures in Zones B, C and X … where lenders don’t normally require flood insurance.
After almost every major flood event, there is always news of consumers standing in knee-deep water saying, “I thought my homeowner’s policy covered flooding.” In general, homeowners insurance and commercial property insurance do not cover losses caused by flooding. It is particularly troublesome with events such as Hurricane Ian, which caused damage from both wind and flooding. Without flood insurance in place, consumers are often left trying to convince a homeowner’s insurance company to cover losses caused by flooding…a difficult debate to be involved in (and usually unsuccessful). Carrying both property and flood insurance puts the consumer in the best position.
The NFIP provides about 85 percent of flood insurance in the United States. The maximum limits available have not changed since 1994, with those limits being $250,000 in buildings coverage for one-to-four family dwellings and $100,000 in contents coverage and $500,000 in coverage available for commercial buildings (such as offices and restaurants) and $500,000 in contents coverage available. FEMA data shows that over a third of all policies are written at maximum limits, with the number even higher in coastal states and high net worth areas. That means flood insurance above the NFIP limits is often needed. Premiums vary based on building features, but rating factors include degree of coverage, type of structure, height above ground level and proximity to flood sources. Sometimes the cost can be measured as “just a few dollars per day … less than what many people spend every day at their favorite coffee shop!”
Some private insurance companies (not NFIP) write flood insurance in some parts of the country. Generally, these policies provide coverage that is better than NFIP through higher coverage limits, better coverage, and sometimes a lower price. Whether the NFIP or a private insurer is a better option takes a discussion with a qualified insurance agent.
- Floods cause billions of dollars in damage each year.
- Too many consumers do not purchase flood insurance, resulting in significant out-of-pocket costs.
- The cost of flood insurance is sometimes cheap.
- All are in a flood zone.