Living room flooded with floating chair and no one above

Navigating the Rough Waters of Personal Flood Insurance

Written By: Rob Conner, Personal Account Executive

Flooding is one of the costliest natural disasters to hit the United States, especially in the last two decades.  If you live in Louisiana, Texas, New Jersey, New York, or Florida, this pain is particularly real.

The average annual cost of flood insurance claims has grown from $257 million in the 1980s, to $659 million in the 1990s to $2.8 billion in the 2000’s.  Since 2010, this figure has increased dramatically.

Hurricane Harvey in 2017 accounted for $8.8 billion in flood claims for Texas and Louisiana policyholders alone.

Unfortunately, homeowner’s insurance does not provide coverage for this common occurrence.  A homeowner or business must secure flood insurance separately if they want to be protected.

If your property is located in a “special flood hazard area”, or SFHA, then flood insurance is mandated if you have a mortgage or loan on your property.  These areas are designated by the Federal Emergency Management Agency (FEMA), and are areas prone to flooding.

However, regardless if you live in one of these areas that are specially designated as flood-prone, your property can still be vulnerable to a flood.  According to FEMA, 20-25% of flood claims occur outside of high-risk flood zone areas.

Further, if you live in an area that is not designated as an SFHA, you could see far cheaper premiums, making this necessary protection affordable.  One important detail to point out is that there is a 30 day waiting period before flood insurance goes into place, so this isn’t something you can wait for the last minute.

The only caveat to this waiting period is if your lender requires flood insurance in order for your loan to close.  Under that circumstance, flood insurance can be placed immediately upon the date of your loan closing.

Since 1968, the primary way to secure flood insurance has always been thru the National Flood Insurance Program (NFIP).  Administered thru FEMA, the NFIP works with various insurance carriers to administer and service flood policies across the United States.

These carriers are known as “WYO” (write your own) carriers.  Since the rates are set by FEMA, and are the same across the board, there is no difference in the premium amongst the various insurance carriers that actually service the policy.

It is also noteworthy that in addition to the WYO insurance carriers involved in flood insurance, many other private insurance carriers are getting involved in flood insurance.  Private flood insurance carriers have increased drastically in the last few years alone, from 46 companies in 2016, to 89 companies in 2017, to 124 companies in 2018.

These various carriers are not affiliated with the NFIP, but are normally underwritten through large, global insurance carriers, i.e. Lloyds of London.

Private carriers can offer cheaper premiums, faster quotes, and easier terms, however, they have their drawbacks.  For one, they are not backed by the federal government, so the likelihood of insolvency is greater.

Further, since their rates are not set by the federal government, which has some limitations on how much premiums can increase year to year, they can increase their premiums dramatically from one year to the next, particularly if they write a large portion of business in an area which sees a large flood loss.

Turning towards coverage, flood insurance provides coverage for buildings and contents/personal property.

If you purchase flood insurance thru the NFIP, or an NFIP backed write your own insurance carrier, the maximum coverage you can purchase is $250,000 for a residential building, $500,000 for a commercial building, and $100,000 for personal property coverage (private flood carriers can normally offer higher limits than this).

It is also important to note there are some limitations to the building coverage and personal property coverage.  Building coverage does not extend to property outside of your dwelling, like landscaping, decks and patios, fences, seawalls, and swimming pools.

It extends to certain detached structures, like a detached garage, but coverage is limited to 10% of your overall dwelling coverage.  Further, it is important to note that flood coverage does not protect much of your personal contents located in a basement or crawlspace (think television sets, recreational equipment, etc).

Flood insurance protects certain items in your basement/crawlspace, but is limited to appliances and “equipment that services the building,” like a hot water heater, furnace, generator, oil tank, etc).

So if you have the rec rooms of all rec rooms in your basement, it’s important to remember that not all of those contents are going to be covered.  If there is a pending storm on the horizon, it is best to try to bring much of that property to a higher level in your home, if possible.

This information only scratches the surface of the intricacies in flood insurance.  Flood insurance regulations and guidelines are not set in stone.  We have seen catastrophic flooding incidents in the last few years alone, so flood insurance reform is likely on the horizon.

Navigating your way thru the rough waters of flood insurance is made much easier when you have a trusted insurance agent by your side.  Please contact Mints Insurance Agency for a quote or an insurance consultation.