STUMP » Articles » Insurance Notes: Flood Insurance » 5 September 2017, 08:23

Where Stu & MP spout off about everything.

Insurance Notes: Flood Insurance  


5 September 2017, 08:23

I’ve retired Mortality Monday for right now, but I’ve decided to replace it with stuff about insurance, and it won’t always be on Mondays.

Mind you, I’ll mainly be talking about insurance from a public interest point of view – not about the business of insurance, or all sorts of other things.

The business of insurance is my day job. I’m used to writing for an audience who knows a lot about insurance, mainly for insurers themselves, but also to related consultants, investors, etc. And yeah, our research products aren’t cheap.

So I’m only going with publicly available data (and I’ll link it), and write for those who may know nothing whatsoever.


Obviously, Hurricane Harvey is involved, but it was a specific story coming out of Texas that lots of my Texas friends/family were posting:

Here’s Why You Should File a Hurricane Harvey Insurance Claim Before Friday [September 1]:

If your home or business has damage from Hurricane Harvey, you should notify your insurance company—in writing—that you intend to file a claim before a new law takes effect on Friday, according to the Texas Trial Lawyers Association. Even though the hurricane occurred before the law took effect, a claim filed on Friday or after will likely be covered by a new law that seeks to reduce frivolous insurance lawsuits.

On Friday, the penalty for an insurance company that doesn’t promptly pay a claim as a result of a lawsuit will be determined by a market-based formula that is currently at 10 percent. The former penalty was 18 percent. The new law also gives lawsuit immunity to insurance adjusters who low-ball a claim.

I don’t want to address insurance companies being cheap on paying claims right now (I will not dispute that some companies have a really bad reputation with regards to this).

It’s that the damage due to flooding isn’t covered by this Texas state law. Because regular homeowners insurance does not include coverage for flood damage.

My response was on facebook (all my facebook posts are public, so feel free to take a look):

The thing is that not all damage from Harvey was going to be from flooding. So there may be some non-flood claims that people really needed to get into the regular homeowners insurers.

Even if one hadn’t gotten the claim in by Friday, one can still file. Don’t assume that the insurers will deliberately screw with people… most often, it’s that the specific damage (aka flood damage) isn’t covered by the insurance.

People end up bitching online about the insurers trying to screw them over, when the case is that the most saintliest of insurers wouldn’t pay off on damage not covered by the policy. I run into this thing all the time (“They wouldn’t pay for a new windshield!” “Did you have a auto glass coverage rider?” “no…but….THEY SCREWED ME OVER!”)

If you have a problem with your insurer, you can contact your state’s department of insurance. That’s true for your auto, homeowners, even life insurance policies.


Base flood insurance is provided through a federal program.

Here is the official web page on flood insurance. You will see that you still have to buy a policy through an insurance agent, and if you have homeowner’s insurance, you can usually get a referral through there. That’s how I got my flood policy.

As per the title, it is a national program. Property insurance is, in general, a state-based coverage. There is a whole history of why insurance in the United States is regulated on a state level, with little interference on a national level. One reason is that our states are of a similar size to many countries in terms of population, area, and GDP.

Another reason is that the insurance needs can differ quite dramatically by state, due to the type of climate/geography they have.

Now, I mentioned above that I have flood coverage, even though I’m on a hill and don’t have much flood risk. But it doesn’t take a hurricane to end up with flood damage on your property.

Check out this flood risk visualization from FEMA.

Here’s Texas:

Here’s New York:

My area (Northern Westchester) has had about 2 flooding events per year in the past decade.

Check out FEMA flood maps.


This is something that happens in insurance a lot: people are underinsured for their risks.

This is especially true with respect to flood insurance.

Most Homes in Tropical Storm Harvey’s Path Don’t Have Flood Insurance

Most homes in the path of Tropical Storm Harvey don’t have the flood insurance that owners would need to rebuild if their homes are damaged or destroyed.

Figures from the National Flood Insurance Program show that only 15% of homes in Harris County, which includes Houston, have flood insurance, while only 20% of homes in Nueces County, where the coastal city of Corpus Christie is located, are covered. Coverage rates are higher in the area’s flood zones, but many homes still aren’t covered.

So here’s the deal: most people don’t buy insurance unless they’re forced to. Mortgage lenders often force homeowners to have homeowners coverage and flood coverage if the homes are in a flood zone. But me? Nobody forced me to have flood insurance.

Here’s the second bit — flood insurance isn’t priced according to risk. Those in high risk areas pay much lower premiums than would be required given their level of risk. That’s one issue with politically-imposed pricing: usually the risks are underpriced, with an implicit “put” on taxpayers.


In wake of Harvey, experts puzzled over how to make more people buy flood insurance

As the National Flood Insurance Program heads toward insolvency, Congress must weigh whether and how to reauthorize the program and settle its $24.6 billion debt, which is expected to swell once Hurricane Harvey claims start pouring in.

What that means for policyholders is yet to be seen.

One particular concern is that it takes considerable arm twisting to make anyone participate in the program. While flood insurance is required of any property owner in a high-risk flood zone with a federally backed mortgage, people in lower-risk areas or who have paid off their mortgages are not required to carry the insurance, so many don’t.

The most high-profile effort in recent years to make the NFIP viable focused on raising premiums on policy holders, though it was halted when it caused a real estate panic in coastal communities, including those in Louisiana.

Because there are extreme flood risks in coastal communities.

Flood insurance through NFIP covers only up to $250K in damages, and to get an idea of how expensive flood risk really is, one can look at excess insurance covers, which goes beyond that $250K

Who Offers Excess Flood Insurance?

Only a handful of companies sell it, says Bill Gatewood, director of personal lines for Burns & Wilcox, an independent wholesale insurance brokerage.

Can You Get a Private Policy Only?

Some insurers sell a purely private flood policy, which eliminates the need for an NFIP policy.

Since the policies are market-based, they’re usually more expensive than insurance through NFIP. And insurers who offer them often only cover property valued at more than $1 million whose owners meet certain net worth standards.

Excess Flood Insurance Rates
It’s expensive, though specifics are hard to come by until you start seeking quotes.

“What we see is sticker shock,” Gatewood says. “Sometimes when people are buying homes, they think about just the cost of the home. Then, they go to get [excess] flood insurance and find out it’s going to cost $36,000 a year to insure.”

Excess flood coverage is the type of insurance only rich people can buy.


What Isn’t Covered by Excess Flood Insurance

The typical excess flood insurance policy won’t cover:

Cash, art, jewelry, or other expensive items. (Take those items with you when you evacuate before a storm.)

Lost rental income from an investment property.

Basements in homes close to water.

Homes in areas that insurers consider too high a risk.

Most of these insurers aren’t going to cover coastal properties, or places like Houston or New Orleans. The risk is too high.

There are lots of governmental insurance systems like this, such as the PBGC (pension benefit guaranty corp), which charge too little for the risk many of the participants bring to the program. I’m not expecting political appetite for telling people in flood-prone areas that they have to pay more if they want to get bailed out of their high-risk areas.


aka, if you’re high-risk, you’re gonna have to pay for that risk (“less accessible” = more expensive).

From that final one — if you’re eyeing the upcoming Hurricane Irma for damage, no, you can’t buy flood insurance now and have Irma damage covered.

Hurricane Irma: What you need to know about flood insurance:

Homeowners scared by Harvey and in the potential path of Irma can’t get National Flood Insurance Program coverage immediately because of a typical 30-day waiting period.
The basic National Flood insurance program policy for homeowners costs $450 per year and covers up to $250,000 in damage to the building and up to $100,000 in damage to the contents, Barletta said. The Federal Emergency Management Agency sets the price, and it’s not negotiable.

Homeowners who live a flood-prone area would pay more, Barletta and other insurance experts said.

Homeowners who live a flood-prone area would pay more, Barletta and other insurance experts said.

On D Treasure Coast [Florida], 57,433 homeowners had valid flood insurance policies as of June 30, FEMA statistics show.

A crucial mistake some homeowners make nationwide is thinking their homeowners insurance covers flooding from high waters, said Florida Insurance Commissioner David Altmaier. He encouraged property owners to have flood insurance for their homes and businesses.

Well, it’s too late for Harvey & Irma, but I do recommend looking into it.