USA TODAY International Edition
Hazardous gamble: Too few homes have flood insurance
The drenching rains and flooding caused by Florence are expected to inflict a high financial toll on homeowners in North Carolina and other states, as only a small percentage are covered by flood insurance that could help offset the costs of rebuilding their damaged homes.
Estimates from insurance analysts and actuaries show an alarmingly high percentage of homeowners – in coastal towns and those far inland – that are underinsured for a water-driven natuto ral disaster as destructive as Florence.
Only 10 to 20 percent of coastal homeowners in the hard-hit eastern part of North Carolina have coverage through the government’s National Flood Insurance Program, and only 1 to 3 percent of homes in inland counties have flood policies, according to estimates from John Rollins, an actuary at consulting firm Milliman.
Statewide, roughly 3 percent of the homes in North Carolina have flood coverage, and 8 percent of homeowners are covered in South Carolina, Rollins said.
An estimated quarter of a million homes in North Carolina are projected be affected by Florence, which has caused flash flooding and record rain amounts, according to CoreLogic, a property analytics company.
“Obviously, that leaves a lot of people uninsured,” Rollins told USA TODAY.
The numbers are low, he said, because people think that because their home isn’t in a high-risk zone designated by the government, there’s “zero risk” of a flood.
“But that’s not true,” Rollins said. Many also don’t realize their basic homeowners insurance policy doesn’t
cover flood damage, while others overestimate the disaster aid they will get from the government.
Standard homeowners insurance won’t cover any flooding-related issues. The estimated insured losses from Florence are in the range of $3 billion to $5 billion, according to CoreLogic, but could go as high as $10 billion to $20 billion, according to Goldman Sachs, a Wall Street bank.
Insurers should have no problem being able to pay out claims to policyholders, as the broader insurance industry has cash reserves of roughly half a trillion dollars, according to Matt Carletti, senior insurance analyst at JMP Securities.
The problem for homeowners is that insured losses generally are only about one-third of economic losses.
To get flood coverage, homeowners must buy a separate policy. Most purchase it from the government-backed flood insurance program, which is designed to restore a home to its preflood condition and replace possessions. The policies, which carry average premiums of about $600 to $700 but can run into the thousands of dollars in high-risk zones, cover up to $250,000 for a home’s structure and up to $100,000 for personal possessions.
Homeowners not covered for flood damage can seek federal disaster assistance in the form of grants from the Federal Emergency Management Agency or apply for a loan from the Small Business Administration, said Steve Bowen, meteorologist for Aon Benfield’s Impact Forecasting division. FEMA may provide up to $33,000 in assistance for home repair, although the average for Hurricane Sandy in 2012 was about $8,000 and roughly $7,100 for Hurricane Katrina in 2005.
Damage to homes caused by floods tends to be costly. The estimated potential loss for a 1,000-square-foot, singlestory home with possessions worth $20,000 that is inundated with just 1 inch of interior water can run as high as $11,000, according to FEMA data, and the estimated loss for 5 inches of water climbs to more than $18,000.
With Florence, “you are looking at a lot of homeowners that will have out-ofpocket costs that could easily be five figures, or more than $10,000,” said Cathy Seifert, an insurance analyst at CFRA, a Wall Street research firm.