Historic Flooding Exposes Homeowners Insurance Gaps

Communities across the central and southeastern U.S. are continuing recovery efforts as of April 23, after a storm system early in the month brought historic rainfall and flooding, causing widespread destruction and at least 24 deaths across several states. The Ohio River hit its highest level since 1997 as it crested near downtown Louisville, Kentucky, flooding storefronts and evacuating buildings, and the risk was exacerbated in many areas as additional storms moved in just days later.

“This area is known for severe flooding, but it has been a long time since it has seen this kind of water. It is very unfortunate,” said Brad​​​​ Turner, Vice President, National Product Manager, Flood, Burns & Wilcox, Morehead City, North Carolina. “The Kentucky-West Virginia corridor has some areas where the terrain changes drastically, and they are also exposed to major riverways. It is not unprecedented, but this is definitely a top-five event for the area.”

On April 20 in central Oklahoma, a “historical weather event” led to dangerous flooding and dozens of high-water incidents in an area that was already waterlogged and at higher risk for flooding due to the storms that hit two weeks prior, CNN reported.

Many homeowners in these regions do not have Flood Insurance, as the coverage is not included in standard Homeowners Insurance policies, said Jacob​​​​ Martin, Manager, Flood, Burns & Wilcox, Charlotte, North Carolina.

“A lot of folks are not even aware of that,” Martin said. “It is common to not understand that flood is not covered under a Homeowners Insurance policy, so a lot of individuals end up not having coverage when an event like this happens.”

It is common to not understand that flood is not covered under a Homeowners Insurance policy, so a lot of individuals end up not having coverage when an event like this happens.

Continued storms ‘compound’ damage

According to AccuWeather, the flooding and severe weather in early April were expected to cause an estimated $80 billion to $90 billion in total damages and economic loss. In Louisville, Kentucky, once receding flood waters gave property owners a chance to assess damages, one restaurant owner said her business took on 10 feet of water and will need to be completely rebuilt, WDRB reported April 14.

“Some of those areas received historically high water levels,” Martin said. After hearing about the damage, some property owners in neighboring communities have been seeking Flood Insurance coverage, which is available through FEMA’s National Flood Insurance Program (NFIP) or the private insurance market, he said.

Turner has noticed the same trend. “It has certainly raised awareness,” he said. “That is obviously at the price of loss of lives and loss of property, so it is a sad situation.”

On April 17, forecasters warned of more heavy rain and thunderstorms headed toward the central U.S., raising the risk of further flooding, the New York Times reported. Continued rainfall after a severe flooding event can worsen the disaster for homeowners and business owners, Martin said, with highly saturated ground and full reservoirs making these areas more likely to flood again.

“A flooding event does not just stop as soon as the rain stops. It takes time for the water to move on,” he said. “It is one of those things that will compound the event.”

Unfortunately, Turner added, “the secondary events that happen afterwards tend to be worse than the first because the water level already remains so high.”

The secondary [flood] events that happen afterwards tend to be worse than the first because the water level already remains so high.

Many are uninsured, underinsured for flood damage

In a 2023 survey by the Insurance Information Institute, 22% of homeowners reported being at risk for flood, and 78% of those respondents purchased Flood Insurance. However, FEMA reports that 99% of U.S. counties have experienced a flood event during the past 20 years and more than 40% of NFIP claims are from outside “high risk” zones for flooding.

In addition to the large number of property owners who are completely uninsured for flood damage, many owners today are likely underinsured, Turner pointed out.

“That is becoming a more prevalent problem as property values rise and there is a 25% to 40% increase in the cost of reconstruction for these properties,” he said. “Combine that with the fact that the NFIP only insures up to $250,000 for a home and $500,000 for a business, and you have a lot of properties that do not have sufficient coverage.”

Private Flood Insurance policies can offer higher limits and broader coverage than NFIP policies, including coverage for secondary structures, personal property in a basement, pool repair and refill, lawn and plants, and temporary living expenses while a home is being repaired. Replacement Cost Value coverage for contents rather than Actual Cash Value coverage may also be available.

“The replacement cost wording can have a very large impact. Items like electronics depreciate very heavily as soon as you bring them home,” Martin said. “The private Flood Insurance market goes above and beyond when it comes to coverage.”

The private Flood Insurance market goes above and beyond when it comes to coverage.

Protecting commercial properties

When a commercial property is affected by a flood, the loss of business income can be one of the most challenging impacts, Turner said. Private Flood Insurance policies may offer business interruption coverage, but this is not available under NFIP policies. “Indirect loss tends to be one of the biggest economic loss factors that we see with flooding,” he said. “A lot of entities experience a flood loss one time and that can sometimes put them out of business. Without the proper insurance in place, it can really become an issue they cannot overcome.”

A lot of entities experience a flood loss one time and that can sometimes put them out of business. Without the proper insurance in place, it can really become an issue they cannot overcome.

Commercial properties at higher risk for flood can also find coverage options through Parametric Flood Insurance coverage, which pays out a fixed amount based on a specific flood depth. “Parametric coverage allows us to cover nontraditional risks in a way that is customized to what the commercial entity wants to cover as well as their budget,” Turner said.

Property owners should discuss their flood risk with a knowledgeable insurance broker, including a review of lesser-known benefits like Flood Loss Avoidance for preventative measures such as sandbags when flooding is imminent.

“If you stay in a house in a 1-in-100-year floodplain and you have a 30-year mortgage, the percentage risk that you have a loss during that time period is actually pretty high,” Martin said. “Consider the flood risk for your individual property and seek out an expert to consult.”

Property owners should also know that the NFIP is still awaiting reauthorization as of April 21, as its current authority expires Sept. 30. “With everything going on with government cuts on spending, it is something to evaluate,” Turner said. “Is the program going to be there long-term, and is it going to look the same as it does today? We do not necessarily have a solid understanding of where it may be in the future, but it does not really stand toe-to-toe with a lot of the private coverages that exist now.”