The ‘whys’ behind lack of flood insurance coverage
One of the ongoing issues with hurricanes and other flood disasters is the fact that many, many people lack flood insurance. But why is that? Why are people not buying the coverage they need?
The Private Risk Management Association (PRMA) conducted a survey of agents about why their insureds do or do not carry flood insurance. We had the chance to talk to Lisa Lindsay of PRMA about the study and its results.
Their study showed that across the board, whether high net worth or not, people’s mindset is that “It won’t happen to me.” Flood insurance is seen as something homeowners are required to have, not something they need to protect their assets. The study showed that many people only buy flood insurance because the bank says they have to. They later celebrate when they’re no longer required to hold flood insurance because their mortgage has been paid off.
Likewise, consumers have been conditioned to believe that unless they are in a high-hazard flood zone, coverage is not needed. The fact that flooding occurs in many non-high hazard areas is overlooked. It’s not just coastal areas that flood, but areas near rivers, streams and even low-lying areas in towns where runoff can accumulate often flood, causing unsuspecting homeowners damage that’s not covered by their normal homeowners’ policy.
Better understanding of mitigation efforts
Not only do people need a better understanding of flood insurance, but they also need a better understanding of mitigation efforts, that is, steps they can take to prevent or minimize flooding and reduce the potential damage. Sandbags, inflatable barriers and landscaping are just some ways people can prepare for a flood. Both the National Flood Insurance Program (NFIP) policy and the new ISO Personal Flood Policy provide up to $1,000 for steps taken to protect the insured building from flood or imminent danger of flood. The $1,000 is provided for the cost of:
- Sandbags and sand to fill them,
- Fill for temporary levees,
- Plastic sheeting, and
- Lumber used in connection with these items.
As most insureds don’t read their policies, it’s likely that most are unaware of these coverage benefits for mitigation of damages.
Private flood policies to the rescue?
With the concern surrounding the National Flood Insurance Program (NFIP), carriers are beginning to issue private flood policies. For example, one carrier has a private flood policy with limits up to $15 million on property, much higher than the NFIP limits of $250,000.
ISO has developed both a Commercial Flood program and a Personal Flood program, both available this year. The expansion of available coverage should be a tremendous help in getting homeowners insured. However, education of agents and the public is key.
Better analytics is helping to make private coverage possible; instead of just referring to the standard flood maps, which may be out of date, there are companies providing better analysis of property that includes rainfall, local topography, elevation and susceptibility to hurricanes, not just for rains but for winds and storm surge as well.
Although flood insurance can be expensive in some places, in many areas that’s not the case. As a result, property owners don’t investigate their options for coverage.
Another issue is construction itself. Builders resist changes to codes to make properties safer while continuing to want to rebuild in areas that have been flooded. If building is going to occur in such areas, the buildings need to be built in a way to protect the property as much as possible from flooding. People also get a false sense of security from the fact that the town has allowed buildings to be constructed in low-lying areas, figuring that if zoning approved of the area it must be safe to construct a home in that area.
Understanding the 100-year flood
Yet another large issue is the misperception of the 100-year flood. Many people believe that this means that the chance of their property being flooded is one in 100 years. What it really means is that every year there is a 1% chance of flood. This puts the property at significant risk, as not only do 100-year storms need to be accounted for, but other storms as well.
Time Period10 Yr.25 Yr.50 Yr.100 YrTotal Odds1 yr.10%4%2%1%17%10 yr.65%34%18%10%127%20 yr.88%56%33%18%195%30 yr.96%71%45%26%238%50 yr.99%87%64%39%289%
Source: FC&S Online
The overarching issue is how to educate both the public and the industry on flood mitigation techniques and the availability of insurance coverage. The industry needs to inform people of not only what their risk is but also about the available risk evaluation tools, mitigation techniques and available coverage. Agents and brokers need to be well informed in order to proactively change the narrative of flooding and coverage.