INSURANCE PAYOUTS LIKELY WON’T PUT VICTIMS’ LIVES BACK TOGETHER
Some policies have claim limits, and government relief will only go so far
When the rain finally stops, a vast majority of homeowners in Southeast Texas digging out from Harvey’s aftermath will confront another arduous obstacle — finding enough money to repair uninsured properties.
Estimates indicate that only about one in five homes in the greater Houston area are covered by flood insurance, a scenario that will likely drive hundreds of thousands of people and business owners to abandon their properties or take on heavy debts, not to mention heightened pleas from local governments for more federal subsidies.
The Consumer Federation of America estimates only about
20% of homeowners with flood damage in the region have insurance protection. Harvey could result in as many as 50,000 claims for wind damage by homeowners, and “as many as two or three times” as many claims for federal flood insurance, it says.
As of April, only about 15% of homes in Harris County, Texas — with 1.8 million homes and home to Houston, the nation’s fourthlargest city — currently have active policies from the National Flood Insurance Program (NFIP), according to risk consulting firm Aon. Similarly, take-up rates are lacking in neighboring counties, Aon said.
In total, the storm will result in
$30 billion to $40 billion in property damage, Moody’s Analytics estimates.
“It’s unprecedented on so many different levels,” says Steve Bowen, a director and meteorologist at Aon. “Unfortunately, we are going to see that an abnormally high rate of economic damage is uninsured.”
With rain still falling, total insurance damage estimates are hard to come by, and damage assessors won’t be able to get a more accurate assessment until it’s safe to do so. But the amount paid by insurers likely will fall somewhere between the payouts of Hurricane Katrina in 2005 and Hurricane Sandy in 2012, estimates Tom Santos, vice president of federal affairs of the American Insurance Association.
Katrina resulted in $14 billion insured losses from floods while Sandy incurred $8.4 billion, he said.
The rush of flood claims will take a heavy toll on the already burdened NFIP, the insurance program run by the Federal Emergency Management Agency.
More than 90% of all flood insurance policies in the country are issued by NFIP. And homeowners whose property is located in designated flood zones are required to buy a policy, a requirement enforced by mortgageissuing banks.
Much of Southeast Texas was not considered FEMA-mapped zones in risk of flooding despite a rapid increase in population in Houston since 2000 that has pressured its drainage systems.
“Most people in these lower risk areas don’t buy flood insurance,” says Carolyn Kousky, director for policy research and engagement at the Wharton Risk Center of the University of Pennsylvania.
Those who’ve paid off their mortgage or have a home bequeathed from parents — even if they are in the flood zone — are often reluctant to buy a flood policy.
Renters can also buy flood insurance from NFIP, but many aren’t aware of it, Santos says. Typical homeowners or renters’ insurance policies generally don’t cover flood-related damages.
Complicating the issue is that NFIP caps payouts for residential homes at $250,000 and $500,000 for commercial properties.
Many homeowners with a NFIP policy don’t carry surplus insurance even if they own more expensive houses. And repair bills exceeding the cap could be financially burdensome for some homeowners. Those without any kind of flood insurance can turn to government assistance programs for relief. But it may not be sufficient for many affected individuals. FEMA’s disaster relief fund grants only about $5,000 on average in payouts per individual, Kousky said.
“It doesn’t make people whole,” she said. Without flood insurance, “you’re in trouble.”
The staggering amount of help needed in Texas likely will mean FEMA will have to come up with more money to cover losses and award relief funds.