Contemplating obtaining flood insurance following Milton and Helene? Here's what you might encounter.
Last month, Hurricane Helene caused widespread flooding in various parts of the Southeast, including that specific area, leading to approximately $30 billion in uncompensated flood damages.
This incident serves as a reminder of the growing likelihood that properties situated away from the coast can also be susceptible to flooding and substantial damage.
As Mark Friedlander, a spokesperson for the Insurance Information Institute, pointed out to CNN, "If it rains at your place, it can flood at your place. There isn't any region in the country that's entirely free from flood hazards." However, "the lack of flood insurance constitutes the largest insurance coverage gap observed in the United States," he added.
If you're in the market for flood insurance coverage, you should be aware of the following:
A basic guide to flood insurance
Homeowners with mortgages are usually obligated to maintain home insurance by their lenders. Nevertheless, such policies typically do not safeguard against flood damage. The same applies to renters insurance.
However, homes situated within federally designated high-risk flood zones, and even homes outside these zones in some instances, could be subject to mandatory flood insurance requirements.
Most flood insurance is provided by the federally backed National Flood Insurance Program, a division of the Federal Emergency Management Agency. These insurance policies must be obtained directly from private insurers and can only be procured by residents residing in a flood-prone locality that participates in the program.
Communities that have undertaken steps to reduce their flood risk and participate in NFIP's rating program may be eligible for discounts on their flood insurance premiums.
Under FEMA policies, coverage for single-family homes is limited to $250,000 for property damage and $100,000 for contents. Flood insurance for renters only covers the contents of their dwelling, up to $100,000. For businesses, the maximum coverage is $500,000 for structural damage and contents stored.
The nitty-gritty details
There's a wait period for flood insurance. NFIP policies aren't activated until 30 days after purchase. Consequently, you can't game the system by purchasing flood insurance straight before a storm.
The process of settling insurance claims can be tortuous, and policyholders often receive much less compensation than they might have anticipated from their insurer after a flood. It's not unusual for policyholders to resort to litigation to secure additional compensation.
How much will flood insurance cost you?
Insurance premiums may be cheaper in areas where flooding has historically been less frequent. Nevertheless, it's essential to remember that these regions are not flood-proof. The NFIP estimates that over 40% of NFIP flood insurance claims originate from outside high-risk flood zones.
According to the III, the average cost of an NFIP policy is $1,000 a year. Homeowners in low-risk areas can obtain a policy for anywhere between $480 and $600 annually, as per the trade group.
"There are also numerous private flood insurers that offer competitive rates and usually more comprehensive coverage than an NFIP policy," stated Friedlander.
Andy Neal, a senior managing director at Aon who heads climate and natural catastrophe analytics, indicated that the company is witnessing an uptick in Americans obtaining flood insurance this way.
"However, the increasing frequency and severity of extreme weather events, and climate risk in particular, mean consumers should anticipate higher premiums in the long term — and following events like (hurricanes) Helene and Milton that result in significant losses, in the near term," said Neal, who was previously the NFIP's chief actuary.
In areas that have recently experienced major flooding, insurers are likely to either boost rates due to a heightened perceived risk or exit the market entirely, according to Scott Hawkins, head of insurance research at asset manager Conning.
One element that will significantly impact flood insurers' decisions is the cost of reinsurance, which refers to the insurance that insurers purchase to protect themselves against high-risk, high-loss events, Hawkins told CNN.
Businesses in flood-prone localities, such as those affected by Hurricane Helene, should consider obtaining flood insurance to protect against substantial damage. Despite the average cost of an NFIP policy being around $1,000 a year, private flood insurers often offer competitive rates and more comprehensive coverage.
