Americans are getting a little disaster weary. From the horrific wildfires out west to torrential rains and flooding all summer in the east, it has been quite a year. And in the south and east, we all know what August means…hurricane season is upon us! Mother Nature is getting on our nerves in 2018!
How can we protect ourselves to minimize the risks to our homes, our property and our livelihoods? Mitigating risks from catastrophic events starts with prevention and planning by both government and individuals. Prevention can start with using damage-resistant building materials, having elevated home designs, enforcing safe building codes, developing flood plain management systems, securing or removing hazards ahead of storms and by having evacuation or escape plans in place. FEMA has an 81 page guide of Mitigation Ideas to deal with earthquakes, landslides, floods, hurricanes, hail, lightning, tornadoes, severe winter weather and more. https://www.fema.gov/media-library-data/20130726-1904-25045-2423/fema_mitigation_ideas_final_01252013.pdf There are many threats coming from our environment, but many things that can be done to lessen some of the painful aftermath of these occurrences.
We certainly can use property & casualty insurance to plan and prepare for the worst. In hurricane-prone areas, for example, we have riders for “named storm” or “wind and hail” coverage that comes with our homeowner’s insurance. The costs of the insurance can be reduced by increasing the amount of a deductible you want to have or, in other words, how much you can afford to pay out of pocket for repairs after a storm. We also look for extra coverage for those circumstances when there is a widespread event like a hurricane that may drive costs up with higher demand for labor and materials. Homeowners may want to have an extended coverage rider built in to help with those higher costs. It is important to evaluate what your risk tolerance is for these situations and how much you want to pay to transfer some of the risk to the insurance company. If your home is destroyed or badly damaged, do you have a comfortable level of protection for you and your family?
There has been much discussion on the 50 year old National Flood Insurance Program, as well. President Trump recently signed the legislation to extend the debt-ridden program until November 30th. That means not dealing with necessary reforms until after hurricane season and mid-term elections. The federal program, which is some $20 billion in debt to the U.S. Treasury, offers subsidized flood insurance to coastal or flood-prone areas where private insurers have pulled out or made it unaffordable. As it is, the NFIP provides coverage with caps on claims for homes at $250,000 and on property at $100,000. Many higher-value property owners may choose to also carry “excess” flood insurance to bridge the gap between the federal program caps and the value of their homes and property.
Unfortunately, the reduced premiums from about 5 million NFIP flood insurance policies nationwide cannot adequately support the claims that have come from recent events, including storms like Sandy, Katrina, Harvey, Maria, Irma and Matthew. And hurricanes aren’t the only cause of flooding. We have seen some of these epic rainstorms cause significant inland flooding and damage. As the head of the SC Department of Insurance said recently, “our entire state is in a flood-zone.” And this may be true for many areas in the South, East and Midwest. It is clear there is a need for a flood program that can provide support for affected residents after a storm, especially as we see changing climate conditions and rising sea levels. Lawmakers thus far have been unable to find a bi-partisan fix to the financially strained system.
As homeowners and members of our communities, we should certainly do our share to prepare for these natural events and make sure we have a solid plan in place for our families and our property. We can maintain our property, keep our own emergency fund and can participate in the insurance coverages available to help protect us. And we should hope and expect that our legislators - local, state and national- will compromise to find solutions to reform existing programs and to prepare disaster plans that can assist all of us in the event of a catastrophic event.
At DWM, we use a holistic approach to evaluating your financial plan, including risk management. We will help you review all of your property & casualty insurance policies to ensure that you have appropriate coverage for you and your family. Let’s hope Mother Nature stays peaceful for the rest of the year!