America is about to learn, again, the sad insurance lessons of wind vs. water.
When hurricanes hit, standard homeowners insurance covers damage caused by wind — a tree blown down on a house, for example — but not damage caused by water from flooding. Only homeowners who pay extra for flood insurance administered by the federal government will be covered for flood damage.
There are two terrible things to know about Hurricane Harvey.
- 1) Much of the damage is the result of the way Harvey has stubbornly hovered over the Houston area for days, dumping unthinkable amounts of rain. All that damage will be water damage.
- 2) Less than one-sixth of owners in Harris County, Texas, had active flood insurance policies in April, according to this alert from insurance firm Aon.
There’s going to be a lot of homeless and helpless people in the aftermath of this storm.
“Based on 2016 US Census Bureau data, there were nearly 1.8 million housing units in Harris County; which is home to Houston. Similar take-up rates are found in neighboring counties, though the rate drops off the further inland from the immediate coastline. Based on these statistics, it is expected that a large portion of the overall economic damage caused by flooding will not be covered by insurance,” Aon says.
Chuck Watson, a disaster modeler with Enki Research, told Bloomberg on Monday that about one-half damage from Katrina was covered by insurance, but he expected only one-quarter of damage from Harvey will be covered.
In other words, for many homeowners, Harvey will be worst than Katrina.
Some mortgage holders are required to purchase flood insurance. Lenders can require it, based flood-risk maps that are drawn (and often, re-drawn) by Federal Emergency Management Agency. Anyone can purchase flood insurance, however.
Houston’s flood maps were updated late last year for the first time in a decade. The update placed about 8,000 new homeowners into the Special Flood Hazard Area, which made them eligible for temporary discounts on flood insurance. It’s not clear how many of them signed up.
When hurricanes occur, many insured victims find their homes suffer both wind and water damage, and have to make claims through both policies. The Consumer Federation of America warns that victims must be vigilant and make sure the claims are handled appropriately.
“Since the National Flood Insurance Program (NFIP) is paid for by taxpayers, and often the same insurance company will handle the claim for both the wind and the flood damage, it is very important that consumers verify that insurers do not attribute an unjustifiably large portion of the losses they experience to flood damage,” the CFA said. The CFA site includes a list of tips for dealing with the complex claims process.
The CFA also warned about rising premiums in the wake of the storm.
Flood maps and and the flood insurance program are dogged by controversy. Homeowners newly places in flood zone often are forced to pay for new coverage, which increases their insurance costs and leads to resentment of the program. Meanwhile, the program itself is in debt by about $25 billion. Premiums don’t cover payouts, meaning the rest of the country subsidizes bailouts whenever a flood-prone area suffers a disaster. As far as insurance rates are concerned, it’s too cheap to live in risky areas. The program faces a contentious re-authorization process this fall — it expires Sept. 30. Ideas that would make it more solvent — requiring a wider set of at-risk homeowners to buy insurance — are unpopular among conservatives. Meanwhile, the Trump administration’s budget actually cut nearly $200 million in funding for those often unpopular map updating projects.
Consumers who are watching the storm fallout and thinking about their own insurance coverage can visit FEMA’s flood maps to see about the likelihood of a storm in their area. Just enter your address into the map tool here.
Follow this story: AlertMe
If you’ve read this far, perhaps you’d like to support what I do. That’s easy. Buy something from my NEW LIBRARY AND E-COMMERCE PAGE, click on an advertisement, or just share the story.