Water seems to be everywhere right now. Hurricane season lasts until November 30th, but many of us in the coastal areas of the United States are already weary from this year’s active storm season. Texas, Florida, Georgia and the Carolinas have seen widespread damage from Hurricanes Harvey and Irma and those in the East and Northeast are closely watching Jose and Maria to see what kinds of impacts they will bring. As we watch the news and see the photos of flooded homes, streets turned into waterways and communities working to recover from the mess, the reported costs of these two storms seems almost unfathomable – estimates of the total economic cost for both storms range from $115 billion to $290 billion! Many of those in need of assistance appeal to FEMA, the Federal Emergency Management Agency, and, while FEMA can provide small assistance payments as a safety net, much of the flood damage assistance must come through FEMA’s National Flood Insurance Program (NFIP) – and you must have a flood insurance policy to receive anything from them.
Premium rates for flood insurance policies are partially subsidized by the federal government and, without these subsidies, the cost for this type of insurance could be exorbitant. Complicating the matter is that most banks won’t loan money to build or purchase homes in flood-prone areas without it. Currently, flood insurance claims, partially paid-for by those premiums, will cover replacement costs for property of up to $250,000 and up to $100,000 for contents. The average NFIP claim payment is around $97,000. According to a September 10th Post & Courier article, in SC it is estimated that 70% of properties in the high-risk areas are insured. Also, high-risk areas have a 1 in 4 chance of flooding during a 30-year mortgage, according to www.southcarolinafloodinsurance.org. However, 30% of flood losses occur in flood zones that are not at high risk. As the head of the SC Department of Insurance said, “our entire state is in a flood zone.”
The NFIP is now reportedly close to $25 Billion in debt, even before these most recent storms, and the program was set to expire on September 30th. Last Friday, President Trump signed legislation reauthorizing the National Flood Insurance Program until Dec. 8, 2017 and providing federal disaster assistance for the nation’s hurricane recovery. This buys more time for Congress to consider reforms to the program, which, by all accounts, is drastically needed. Reportedly, program costs overrun annual premium income, even without the catastrophic losses from natural disasters. While a lot of communities have flood mitigation programs in place, there is much discussion that it is time for stronger flood-proofing standards - like making sure that all flood-prone properties are reinforced or elevated and redrawing outdated flood maps to properly assign risk to those properties. Critics have claimed that the NFIP has wasted money rebuilding vulnerable homes when it would be cheaper to help homeowners move to higher ground. There is also concern that “grandfathering” certain properties allows homeowners to pay subsidized rates based on outdated flood maps.
The National Flood Insurance Program was created in 1968 when private sector insurance carriers stopped offering the non-profitable coverage. The idea was to transfer some of the financial risk of property owners to the federal government and, in return, high risk areas would adopt flood mitigation strategies to reduce some of that risk. Some are now arguing that these subsidies mask the true risk of living in these high flood-prone areas and full actuarial rates for flood insurance premiums should be phased in, subsidizing only those truly in need. In a Bloomberg article from September 18th, U.S. Rep. Sean Duffy (R-WI) and U.S. Rep. Earl Blumenauer (D-OR) are appealing for reform and suggest that “…the NFIP’s subsidized rates make flood-prone properties more affordable… and that for “ the sake of people’s health and safety”, it’s critical that we “stop paying to repeatedly rebuild flood-prone properties.” They hope to encourage Congress to reform NFIP and to make bi-partisan recommendations to protect future flood victims.
At DWM, we recommend that you annually review all of your insurance, including property & casualty and flood insurance. There are many ways coastal or flood-prone homeowners can mitigate their own risk with upgrades to roofs, windows, landscaping, hurricane shutters etc. You should find out your home’s elevation and evaluate your risk. You may also want to check on your flood zone and consider a flood insurance policy for added protection. Flood insurance has a 30-day waiting period, so once there is a hurricane en route, it is too late to sign up and be covered in time. For most policies not in high-risk flood areas, annual premiums range from $400-$700 under the current regulations – high-risk flood zones will be more. We will continue to monitor the legislation as it approaches the next deadline of December 8th. Luckily, our DWM office did not have to contend with any direct flooding issues, but we will most certainly be keeping an eye on the weather!
Please let us know if we can help review any of your insurance policies to make sure you have affordable and appropriate coverage on all aspects of your life and property.