Flood insurance can be expensive and have major coverage limitations when disasters strike. But as climate change increases the frequency of extreme weather, it’s becoming essential coverage even for those who don’t live in traditional high-risk areas.
Recent disasters like Hurricane Helene, which severely flooded inland, mountainous parts of North Carolina, and catastrophic rainfall in central Vermont underscore the risks of flooding in areas far from the coasts. Last weekend, record-setting rain in Roswell, N.M., brought flash flooding that killed two people.
In the last 20 years, nearly every county in the US has experienced some degree of flooding, according to the Federal Emergency Management Agency, better known as FEMA. Conventional homeowners insurance offers little to no flood protection, and nationwide just 4% of households carry flood insurance.
That gap in insurance coverage can leave homeowners with catastrophic bills following an unexpected disaster.
“A lot of people think that flood is a covered peril, be it within their homeowner’s policy or their renter’s policy,” said Mark Niess, vice president of private flood at insurer Wright Flood. “There is coverage for water, but there’s not necessarily coverage for flood.”
Flooding is frequently cited as the most expensive type of natural disaster — a single inch of water can cause $25,000 of property damage.
Most flood coverage is provided by the US government’s National Flood Insurance Program, after private insurers exited the market en masse nearly 100 years ago following catastrophic flooding of the Mississippi River.
Homeowners who sit in 100-year floodplains — areas deemed to have a 1% chance of flooding in a given year or a 30% chance over the life of a typical mortgage — are considered “high risk” and are required to have flood insurance if they have government-backed mortgages.
But more and more homes that don’t sit in floodplains are also at risk as the planet warms. Many of FEMA’s flood zone maps haven’t been updated in years, and even those that have been rely on historical storm data and don’t take into account how climate change and an atmosphere that holds more moisture will affect future flooding.
Buncombe County, N.C., which was hit hard by flooding from Hurricane Helene, experienced more than 50 floods between 1996 and 2019, according to FEMA data. But few structures in the county were designated as being in a flood zone, and less than 1% of buildings were covered by NFIP policies.
The lack of insurance is financially devastating. Data provider CoreLogic pegs the total uninsured losses from Helene between $20 billion and $30 billion.
“We know that a lot of things have changed related to how our communities are experiencing flood risk, even just in recent years,” said Anna Weber, a senior policy analyst for environmental health at the Natural Resources Defense Council. “Not only do we have to update the flood maps so that they are accurately describing current conditions, we also have to look into the future so we understand what we’re going to be experiencing in the decades to come.”
Flood-prone states like Florida, Texas, and Louisiana have the most homes insured under the NFIP, but in states as varied as Massachusetts and Arizona, nearly every county has experienced 50 or more floods between the late 90s and 2019, according to FEMA data.
Real estate platform Zillow recently added flooding and other climate-related risks to listings using data from climate risk analytics firm First Street. A Zillow survey found that more than 80% of prospective homebuyers now consider climate risk when shopping for a home, with flood risk being a concern to the largest share of potential buyers.
“In terms of what’s critically important to buyers, affordability has always risen to the top and still does,” said Skylar Olsen, Zillow’s chief economist. “Insurance premiums have been increasing, and I think that’s why it matters to a lot of buyers.”
Of Zillow’s new listings in September, 13.3% were deemed to be at a major risk of flooding.
NFIP’s coverage ensures up to $250,000 worth of property damage and $100,000 in ruined contents of a flooded home. Its coverage of high-risk areas like basements is more limited, and homeowners must fund their own relocation expenses during a home repair. They’re also on their own for damage to external areas like walkways, pools, or hot tubs.
Despite the limitations, average NFIP flood insurance payouts are substantial, averaging $66,000 in recent years. In some disasters, FEMA offers assistance to homeowners regardless of insured status, but the average FEMA grant is much smaller, typically around $3,000.
A man walks near a flooded area near the Swannanoa River after Hurricane Helene on Sept. 27 in Asheville, N.C. (AP Photo/Erik Verduzco, File) ·ASSOCIATED PRESS
But getting people to buy insurance is still a challenge. Studies have shown that humans are particularly bad at assessing events like floods, which are relatively rare but highly damaging if they do come. FEMA requires those who accept flood aid to purchase insurance in the future.
“Part of the challenge is understanding the human psychology of how we understand risk, and what risk perception is,” said Carlos Martín, director of the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies. “We only keep a risk as a high probability immediately after we just suffered it.”
One study published this year found that following a flood disaster declaration, local insurance takeup increases 7% in the next year, then dwindles. Five years later, the demand is gone. More people do seem willing to purchase insurance after a disaster if the cost is lower, but coverage doesn’t always come cheap.
In recent years, the NFIP began adjusting premiums to reflect more factors that can contribute to a home’s unique flooding risks, rather than setting rates based on location on a flood map alone. The sizes of the increases are capped annually, but some 30% of policyholders will ultimately see their rates at least double from what they paid at the end of 2022.
Last year, the median cost of NFIP insurance under the new risk framework was $1,290 for a single-family home.
Private insurers do serve some markets and can provide coverage designed to cover what the government program won’t or completely substitute for it. Wright, one of the nation’s largest flood insurers, typically sees more inquiries after major disasters, but the effect fades, said Sanjay Mehrotra, the company’s vice president of private flood programs.
“People seem to have short memories,” Mehrotra said. “Until there is a requirement for almost everybody to have some level of flood coverage, I think we’re going to continue to see a lot of underinsurance.”
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.
