Hurricane Harvey makes self-insuring for flooding look pretty questionable.
Like everyone with a home mortgage, I have homeowners insurance that covers most catastrophes, although the list of covered catastrophes specifically does not include flooding.
I sometimes worry because my house backs right up to the San Antonio River. Fortunately, my yard and house are outside the boundaries considered to have a 1 percent chance of flooding per year, a so-called 100-year flood plain.
So up until now I’ve never had flood insurance, nor have I been required to have it by my bank.
We’ve recently had a bit of rain here in Texas, which you may have heard about. It got me thinking again about flood insurance, and about how reliable our current risk-assessment methods are.
As a financial rule, I’m usually in the “don’t buy too much insurance” camp, urging people to self-insure whenever possible. Or as the French might say, I adopt an “après moi, le deluge” approach to many insurable risks — meaning “I don’t care what happens after I’m gone,” according to Wikipedia.
Flood insurance, however, might be in the special category of things for which self-insuring doesn’t work as well. Meaning, even though my house sits outside of the 100-year flood plain, I really cannot afford the unexpected but catastrophic loss of my house due to flooding.
I called up my insurance provider this past week to get a quote on flood insurance for my house. I learned a few things.
I received an annual premium quote of $499 for up to $250,000 in damage to my house, plus an additional $100,000 for personal belongings, subject to a $1,250 deductible in each loss category.
Interestingly, I learned my insurance provider is acting not as the underwriter of flood insurance, but rather as a broker for the federal government’s National Flood Insurance Program, administered by the Federal Emergency Management Agency.
In fact, everyone has to go through a private insurance company to get this federal flood insurance. Almost nobody gets private flood insurance.
I mean, there’s also a private market solution, but barely. I went to one provider online and entered all my data to match the quote I got from my regular insurance provider. The annual premium would be $3,219. So, more than six times as expensive as the FEMA quote. With that difference, you can sort of see why the federal government dominates the market.
Matthew Hartwig, a spokesman for insurance provider USAA, told me that its flood insurance call volumes rose up to nine times its regular rates right before, during and after Hurricane Harvey made landfall Aug. 25. Customer inquiries even now continue at a higher than normal rate, he said.
Unfortunately, none of those flood insurance sales in late August and early September can help Hurricane Harvey victims There’s a 30-day wait rule before recently purchased flood insurance becomes effective. Buying now only helps for the next flood.
Interestingly, engineering and flood risk specialists are re-evaluating how we deal with flood risk these days. The old way of risk assessment is to simply map out whether a property is, or is not, in a 100-year flood plain.
Patrice Melançon, watershed engineering manager for the San Antonio River Authority, described to me at least a few engineering discussions underway in the wake of Harvey.
She cited her counterparts in Houston who are actively discussing whether the right level of “risky” should be to look closely at properties previously considered to be in a so-called “500-year flood plain,” or areas that have only a 0.2 percent chance of flooding per year.
Of course, a commonsense reaction to that news is to wonder whether things have changed, possibly due to climate change, such that previous rainfall data informing the 100-year flood plain is no longer accurate in 2017.
While FEMA still relies on maps that show the 100-year flood plain, it is developing, in conjunction with local partners, a more sophisticated set of maps that show the likelihood of flooding within 30 years, as well as the probabilistic severity of flooding inside and outside the 100-year flood plain.
The new maps are “informational” and “consultative” rather than being used for regulatory purposes like the 100-year flood plain maps, but nevertheless represent the next level of risk analysis.
I’ll be checking out those new maps. Even now, about 25 percent of flood claims occur on houses outside flood zones. That’s on houses that are deemed safely outside the flood plain, like mine.
Finally, Melançon mentioned to me that her agency expects to get, in another three or four weeks, updated computer modeling and analysis of what would occur if Harvey-level rainfall fell on San Antonio. I’m pretty interested in those results, too.
Personally, I don’t want to pay $500 to protect against a thing that’s never going to happen.
On the other hand, “a thing that’s never going to happen” just happened all over the city of Houston and in towns up and down the Texas coast.
Also, four Category 4 and 5 hurricanes were never supposed to make landfall within four weeks of each other until hurricanes Harvey, Irma, Jose and Maria actually smashed all normal expectations of weather patterns. So, yeah, we’re buying flood insurance.
As a scary epilogue, you know what else is not covered by regular homeowners insurance? Property damage due to nuclear war. That’s never going to happen either, right? Anyway, enjoy your morning coffee and breakfast, everybody.
Michael Taylor is a columnist for the San Antonio ExpressNews and a former Goldman Sachs bond salesman. michael@michaelthesmartmoney.com or twitter. com/Michael_Taylor