Lack of insurance heaps misery on homeowners
The drenching rains and massive flooding caused by Florence are likely to inflict a high financial toll on homeowners in North Carolina and other states. Only a small percentage are covered by flood insurance that could help offset the costs of rebuilding their damaged homes.
About a quarter of a million homes in North Carolina are projected to be affected by Florence, which caused flash flooding and record rain amounts across the state, according to CoreLogic, a property analytics company.
Estimates from insurance analysts and actuaries show an alarmingly high percentage of homeowners – both in coastal towns and those far inland – that are underinsured for a waterdriven natural disaster as destructive as Florence.
Only 10 percent to 20 percent of coastal homeowners in the hard-hit eastern part of North Carolina, for example, have coverage through the government’s National Flood Insurance Program, and only 1 percent 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.
“Obviously, that leaves a lot of people uninsured,” Rollins told USA TODAY.
The numbers of those covered are low, he said, because people think that because their home isn’t in a high-risk zone designated by the government that there’s “zero risk” of a flood. “But that’s not true,” Rollins says. Many also don’t realize their basic homeowners policy doesn’t cover flood damage, while oth- ers overestimate the disaster aid they will get from the government.
Unfortunately, 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. Goldman Sachs, a Wall Street bank, said they could go as high as $10 billion to $20 billion.
Insurers should have no problem paying out claims to policy holders because the 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 total economic losses.
To get flood coverage, homeowners must buy a separate policy. Most pur- chase this extra coverage from the government-backed NFIP program, which is designed to restore your home to its preflood condition and replace possessions. NFIP policies, which carry average premiums of about $600 to $700 a year 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 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 Superstorm Sandy in 2012 was about $8,000 and roughly $7,100 for Hurricane Katrina in 2005.
Damages to homes caused by floods tend 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.
The estimated insured losses from Florence are $3 billion to $5 billion but could go as high as $10 billion to $20 billion.