Florence’s floods a reminder that many lack insurance

As floodwaters from Hurricane Florence begin to recede, as many as 31 million people in the Carolinas could find their homes have been damaged. Only about 335,000 homes in the two states have flood insurance.

The math is simple, and the result is ugly: Many people affected by the storm are going to have to pay for repairs to their damaged homes out of their own pockets.

If that sounds familiar, it’s because the same thing happened last year after Hurricane Harvey flooded Houston and, to a lesser extent, after hurricanes Irma in Florida and Maria in Puerto Rico.

Standard homeowners insurance does not cover flooding, but coverage is available from the federal government. Anybody can buy it, but not many do. If the National Flood Insurance Program worked as intended, more people would have coverage. But it doesn’t work as intended. Here’s why. Congress established the program in 1968, hoping to lure insurance companies back into a market they abandoned after the Great Mississippi Flood of 1927. That year, multiple levees failed and left thousands of people homeless. Insurers saw that paying flood claims on that scale could wipe them out.

Virtually all insurers dropped flood coverage, and for decades, you couldn’t buy it. Hurricanes and flooding didn’t stop, of course. All people could do in a flood was hope for federal relief — a taxpayer bailout — and if there wasn’t any, families could be bankrupted.

Congress eventually decided it would be better to identify flood-prone homeowners, require them to buy insurance every year, let a pool of reserves build up, and pay flood claims out of it to keep the taxpayers off the hook.

The program started out as a partnership between the government and about 130 insurers. But there were policy clashes, and by 1983 the companies were gone and the government was running the program alone. Today the National Flood Insurance Program is part of the Federal Emergency Management Agency.

“The problem is that the mandate is not enforced,” said Howard Mills, a former New York state insurance superintendent who works at the consulting firm Deloitte.

The enforcement mechanism — requiring people in flood zones to buy insurance — is supposed to be the mortgage industry. Any time a house on a federally designated flood plain changes hands, the lender is supposed to make the buyer purchase a floodinsurance policy.

“But there are lots of holes and gaps, and people just don’t get coverage,” Mills said. Flood plains change as land gets developed, and the government’s maps become outdated. People buy houses without knowing they are on flood plains, or they pay off their mortgages and let their policies lapse. Those who inherit property may never have mortgages to begin with.

People near the coasts tend to know their risks. Owners of expensive beach houses often buy even more flood insurance than they have to, because the government’s mandatory coverage is capped at $250,000 per house plus $100,000 for the contents. On top of that, additional “layers” of coverage can be purchased from private insurers.

In the Carolinas, a quarter to half of the households near the coast are insured, said Ray Lehmann, a member of SmarterSafer, a coalition of taxpayer groups, environmental organizations, insurers and others that has pushed for flood-insurance reform.

Further inland, it’s another story.

“We’re talking about places in North Carolina where the coverage is less than 1 percent,” said Lehmann, also the director of finance, insurance and trade policy at the R Street Institute, a think tank that promotes freemarket policies.

Uninsured homeowners can still get loans from the federal government to pay for repairs to their flooddamaged homes, but the loans have to be repaid. And finding a suitable loan program, filing the paperwork and waiting for the money takes longer than filing an insurance claim would have.