Millions of U.S. residents have begun filing insurance claims on their homes in the aftermath of Hurricanes Helen and Milton, but many are facing denials, especially if their home was damaged by flooding. There is a possibility that
An oddity about the U.S. home insurance market is that flood insurance is separate from general home insurance, which typically covers wind damage from hurricanes but not flooding. If homeowners want to protect their homes from flooding, they must purchase separate flood insurance.
And many people don’t. In some of the areas hardest hit by Hurricane Helen, less than 1% of homes had flood insurance at the time of the storm. In Buncombe County, North Carolina, where Asheville is located, only 0.9% of homes had flood insurance, according to data from the Insurance Information Institute.
More people in Florida, which was hit by Hurricane Milton two weeks after parts of the state were hit by Helen, have flood insurance than in any other part of the country. However, the adoption rate is still low. In Sarasota County, which was hit hard by Milton, only 23% of residents have flood insurance.
According to the Federal Emergency Management Agency (Fema), just one inch of water can cause $25,000 in damage to a home, and since 1996, 99% of all U.S. counties have been affected by flooding. I am receiving However, only about 6% of homes have flood insurance. According to the Insurance Information Institute.
Most people who purchase flood insurance have plans under the federal government’s National Flood Insurance Program (NFIP), which was created in the ’60s because there was no private market for flood insurance. Although some private companies offer flood insurance, two-thirds of companies with flood insurance are insured by the NFIP.
Industry experts say many homeowners don’t know that standard home insurance doesn’t cover flooding.
“Wind damage is typically covered by standard home insurance policies, but flooding is generally not,” says Mark Friedlander, director of corporate communications at the Insurance Information Institute. “In the case of Hurricane Helen, many people filed property and casualty insurance claims. These claims will likely be denied because the losses were clearly due to water damage, not wind damage.”
Friedlander also said people may underestimate the flood risk of their properties and choose not to purchase additional insurance to save money.
Unlike home insurance, which is required for all homeowners with federally backed mortgages, only those with mortgages who live in FEMA-designated high-risk flood zones are required to purchase flood insurance. Mandatory.
High-flood risk zones are primarily areas where residents must evacuate in the event of a major storm, but they are not the only areas that are flooded. According to Fema, 4 out of 10 NFIP flood insurance claims come from outside high-risk flood zones.
“If it rains, your house could flood,” Friedlander said.
Carolyn Kowsky, deputy director of economics and policy at the Environmental Defense Fund, said that in some countries, such as Spain and France, standard home insurance policies include flood coverage, but this would be complicated in the United States.
“There are some low-income, high-risk populations that would benefit from a flat fee,” Kowsky said. “There are also very high-income people in areas like Miami who are at risk, and a flat fee would be a kind of subsidy for them.”
During Hurricane Ian, which hit Florida’s west coast in September 2022, flood damage repair costs accounted for about a quarter of all uninsured losses. According to CoreLogic, uninsured flood losses were estimated to be between $10 billion and $17 billion, while overall uninsured losses were between $41 billion and $70 billion.
Even after Hurricane Ian, the number of people in Florida with flood insurance increased by just 1%, from 19% to 20% of homeowners in the state, Friedlander said.
Flood insurance can cost at least hundreds of dollars a year more in Florida, where residents are already forgoing home insurance altogether due to rising premiums.
About 15% to 20% of Florida homeowners will not have home insurance in 2023, compared with the national average of 12%, according to the Insurance Information Institute.
According to ICE Mortgage Monitor, home insurance premiums have increased 52% nationally since 2020, but some areas of Florida have seen increases of at least 80% over the same period. Earlier this year, the Florida Department of Insurance Regulation reported that the average annual premium rate was approximately $3,600. The national average is $1,915. In some areas of the state, such as the Florida Keys, the average annual premium is closer to $7,000.
Many state-run insurers have stopped offering new coverage in the state or have left the state altogether, leaving residents to purchase plans from regional or local insurers that are at higher risk of bankruptcy. Since 2003, 41 Florida insurance companies have declared bankruptcy or filed for bankruptcy, according to Reuters. This exceeds the number of businesses that filed for bankruptcy in other parts of Florida during the same period.
Parinta Sastry, who studied the insurance impact after Hurricane Irma hit Florida in 2017, said smaller insurers were more likely to leave policyholders with uninsured claims. .
“In areas where people were relying on insurance companies that were in financial trouble, we found that the insurance companies were not paying claims or were not paying enough,” Sastry said. People “thought they had insurance, but the insurance wasn’t as reliable as they thought.”
The number of insurance policies taken out through Citizens Property Insurance, a state government-run insurance company, has increased rapidly in recent years. Citizens Insurance is designed to provide insurance to homeowners who cannot obtain coverage through a private insurance company or who are given a rate that is at least 20% higher than comparable insurance from Citizens .
In 2019, the number of National Insurance policies was over 420,000. Over the next five years, the company’s number of insurance policies is expected to grow to 1.4 million by 2023. Last year, the company tried to transfer its insurance policies back to the private sector after the state passed reforms to strengthen the market.
It’s unclear whether private insurers will re-enter Florida’s insurance market in earnest. State-run insurers argue that the risk of insuring people in the state is too high given the state’s exposure to hurricane damage, soaring construction costs and costly lawsuits against insurers. are. In 2023, Farmers Insurance became the first major insurance company to leave the state.
This is a dilemma seen across the country facing severe weather events related to the climate crisis. The increasing risks associated with climate disasters are making it more expensive to live in certain places. Major insurance companies are also pulling out of California’s wildfire-prone areas, leaving residents at risk of hundreds of thousands of dollars in damages if their homes burn down.
The climate risk nonprofit First Street Foundation estimates that flood risk distorts the housing market by at least $121 billion, leaving some homes worth less than they actually are because flood risk is not taken into account. It looks like there is.
“We are in an environment of ever-increasing risk,” Kowsky said. “It’s very difficult for people to understand that.”
