Flood insurance suffers from ill-informed, preconceived notions
Inland flooding, in particular, is a creeping tide of disaster that often sneaks up on uninsured consumers.
Flood could indeed be considered the proverbial “red-headed stepchild” of insurance.
Consider this: Why do homeowners buy other types of insurance such as auto and homeowners but neglect the peril of flood? While regulators require homeowners and auto-owners to carry insurance on those assets, the only requirement for flood insurance is where a home is in a “high hazard risk area,” and even then, only if the homeowner has a federally-backed mortgage. In other words, it protects the banks but unfortunately not the 57 million homes in the U.S. that have significant flood exposure.
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Most homeowners insurance policies don’t cover flooding. It’s the “out of sight, out of mind” insurance. While flooding is literally the number one most common catastrophic risk in the U.S., coverage is chronically under-purchased. Why? The following reasons prevail:
- Agents think it’s overly complex and time-consuming and, therefore, prefer selling other types of insurance.
- When consumers try to buy a National Flood Insurance Program (NFIP) policy, it is complex and time-consuming. (Look to some of the private flood carriers and find the experience is easy, with little to no paperwork, and presented in “human” language.)
- Consumers either think they don’t need it or think they are not at risk.
Overcoming these preconceived notions will go a long way to solving the stepchild syndrome of flood insurance.
False impressions
Flooding also appears to some to be a minor peril. Consumers are accustomed to images of hurricanes blowing roofs off of homes or wildfires destroying entire towns; this type of natural disaster coverage dominates the news. But in reality, flooding, especially inland, is this creeping tide of disaster that often sneaks up on homeowners: “I can’t believe the water got that high; it never has before!”
Here are some statistics that bring the problem to life:
- Just one inch of water can cause $25,000 of damage, according to FEMA.
- The average flood claim in 2017, the year of Hurricanes Harvey, Irma and Maria, was $91,735, up from $62,247 in 2016, according to the Insurance Information Institute.
- In the past five years, all 50 states have experienced economic loss as a result of flooding.
- Nine out of 10 of all presidentially declared disasters involve flooding.
- According to FEMA, 25% of all flood losses are in areas deemed to be “low to moderate risk.” In Hurricanes Harvey and Florence, that number was as high as 80%.
Imagine you’re a homeowner who was told that you didn’t need to buy flood insurance. The government’s maps said you’re in a low to moderate risk zone. And then, your property is flooded, and you have no insurance.
Over the last 15 years, there have been more than $10 billion in losses for FEMA policies in low to moderate zones.
Agents have a critical role in this discussion, as they represent a vital way to help educate consumers about such a catastrophic, high-cost risk.
Although flood insurance remains the “red-headed stepchild” of P&C insurance products, the numbers tell the story: Flood coverage should be top of mind for consumers.
Jim Albert (jim@neptuneflood.com) is chairman and founder of Neptune Flood in St. Petersburg, Fla. These opinions are his own.
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