October 9, 2019

Flood insurance recedes despite risks

Every hurricane season, research shows that an alarming number of coastal homeowners don’t maintain flood insurance on their properties, despite the financial peril.

This year is no exception. A recent analysis showed a 31% decline in flood coverage over the last 10 years for property owners in the path of September’s Hurricane Dorian.

These properties were in high-risk flood zones, and required under federal law to maintain the coverage.

Administered by the federal National Flood Insurance Program and available through many insurances agencies, a flood policy costs about $500 a year for $250,000 of coverage.

For a lot of families, an extra $500 a year is too rich for their budget. Beyond budget, there is apparently a certain element of “flood amnesia.”

Every time there is a major disaster – whether earthquake, hurricane or tornado – homeowners flock to insurance companies for disaster coverage.

Then after a few years with no major incidents, many property owners let these “extraneous” policies lapse.

Insurers warn that development has turned many areas into potential flood zones across the country. The city of Houston learned that lesson firsthand punished by major flooding after the excessive wind and rain from Hurricane Harvey in 2017.

Unless you live on a hilltop, they recommend purchasing at least some flood insurance.

The decline in flood and other disaster coverage reflects a nationwide trend and has occurred despite a widespread information program by the federal government.

The Federal Emergency Management Agency (FEMA) wants to double the number of people with flood insurance by 2023, and his hoping to enlist private insurers to help. While reticent to provide flood coverage because of the unpredictability of damage, the marketing savvy of big corporations would likely provide a huge boost.

Congress is also looking at ways to help. A new Senate bill looks to extend the NFIP for five years while putting a limit a rate hikes and providing vouchers for lower-income homeowners and renters. It would also freeze interest payments on the NFIP debt and re-invest those savings in mitigation efforts, which have proven to be the most effective way to reduce flood risk.

Recent evidence suggests an increasing risk of natural disasters along the East Coast, and recent work predicts a doubling of category 4 and 5 storms by the end of the 21st century in moderate scenarios.

Being underinsured does not relieve your obligation to keep making mortgage payments, though lenders may suspend mortgage installments or late payments for a limited period – but interest still accrues.

While the federal government pledges to help many uninsured to rebuild, getting funds from FEMA can take months or even years.