Two unoccupied homes in the Outer Banks collapsed into the ocean on May 10, with dramatic video footage showing one of the houses get rapidly swept away after the wooden stilts holding it up broke apart. The other home collapsed only hours earlier, spreading debris across a wide path and leading officials to close area beaches due to the risk of further collapses.
“We are seeing a lot more catastrophes occur,” said Berri Willis, Associate Vice President, Managing Director, Burns & Wilcox, Morehead City, North Carolina. “It is a time game, at this point, as the erosion is just continuing. Some of these homes may have to be moved. It is not just here on the East Coast; it is happening everywhere.”
Experts agree that is the case, as erosion and rising sea levels threaten properties along the Gulf Coast, West Coast and beyond recently reported. In these coastal regions, maintaining the right Homeowners Insurance and Flood Insurance is especially critical.
“The big issue is that climate change has caused the ocean to creep up in a kind of progressive way, where individuals may not notice it until an event like this nor’easter comes through and takes a home away,” said Brad Turner, Associate Vice President, National Product Manager, Flood, Burns & Wilcox, Morehead City, North Carolina. “It is definitely sad.”
Rising sea levels put more properties at high risk
The owner of one of the Outer Banks homes that collapsed told the Press Democrat in a May 16 article that he was heartbroken by the destruction of his family’s vacation home and was working with his insurance company, with hopes to possibly rebuild further from the coast. “In this area of the Outer Banks, some of the proximity of the homes [to the water] is extreme,” Turner said, adding that some homes are particularly vulnerable because there is not a system of dunes structures in place to help mitigate the risk.
While sea levels are rising an average of one inch every five years in this area, some Outer Banks beaches are much more severely affected, losing over 14 feet or more per year, the New York Times reported on May 14.
We are seeing a lot more catastrophes occur. It is a time game, at this point, as the erosion is just continuing.
“These homes were not directly on the ocean when they were originally built. They were built many feet away from the water but with time and erosion of the islands, we are seeing [collapses] now happening,” Willis said. “This might be the new norm if we do not take precautions.”
Sea level rise will make a “massive difference” for many properties in the years to come, Turner said. “If sea levels rise a foot over a 10-year period, that is a massive amount of difference in a storm surge situation,” he said.
In February, a report by climate scientists warned that U.S. sea levels will rise about one foot by 2050, NPR reported. In Canada, sea level rise is of particular concern in places like Nova Scotia, where some of the country’s most severe rates of sea level rise have been seen and entire towns are at risk of flooding, CBC reported in 2020.
Anytime you are in close proximity to the ocean, you want to have Flood Insurance, whether you are required to or not.
While the danger is heightened in certain regions, any homeowner in a coastal area should look closely at their insurance policies, Turner said. Homeowners Insurance can help them recoup losses after property damage due to wind, hail, lightning, fire, and other covered events, and also includes personal liability coverage. Flood Insurance is needed to specifically cover flood damage, as it is excluded on most Homeowners Insurance policies. Flood Insurance is available through private policies and FEMA’s National Flood Insurance Program (NFIP).
“Anytime you are in close proximity to the ocean, you want to have Flood Insurance, whether you are required to or not,” he said. “Limits are going to be very important in these areas, and many homeowners really should seek out Excess Flood Insurance limits as well to cover the entirety of the home. In a catastrophic loss such as a home collapse, that can allow the homeowner to be fully insured as opposed to relying on the NFIP limits.”
In the event of a home collapse, for example, other costs may be incurred beyond the primary property loss. “A lot of things can happen as a direct result of this. Sometimes when homes get washed away, they can take out another home with them,” Turner added. “These are things a Flood Insurance policy can address — not only the property loss but also debris removal. Someone has to pay to remove that.”
Consider increased rebuilding costs when buying insurance
Homeowners Insurance typically pays for “top-down” property claims, such as wind damage, while Flood Insurance can cover water damage that occurs from the ground level up, Turner explained. Hurricane-related damage can create a crossover area, however, since water surges from the ground level but winds happening at the same time could take off a property’s roof, for example.
“There are a lot of situations where the Homeowners Insurance and Flood Insurance complement each other to fully indemnify the insured,” he said. “It is not always clear-cut, and that is why it is important to have both policies.”
Property owners seeking Homeowners Insurance or Flood Insurance are facing a significantly hardened market, with many insurance carriers becoming more selective about the properties they will insure, Willis noted. “With all the catastrophes that are occurring, it is more challenging. We are seeing the hard market escalate,” she said.
This is a learning year for everybody going into a hard market and also watching our economy, inflation, and the cost of materials escalate.
Today’s homeowners may also be at increased risk of an underinsured loss due to the effects of inflation and elevated rebuilding costs. According to the American Property Casualty Insurance Association, a recent survey found that only 30% of insured homeowners had increased their insurance coverage to accommodate today’s higher building costs.
“This is a learning year for everybody going into a hard market and also watching our economy, inflation, and the cost of materials escalate,” Willis explained. “Homeowners should be mindful of the true value of what it is going to cost to replace their home to what it is now. Every time you are up for a renewal, it is a time to ensure with your insurance broker that you are up to date on your value and rebuilding costs. That is huge right now.”
Replacement cost value “has skyrocketed,” Turner added, making it necessary to review Flood Insurance or Homeowners Insurance policies “intentionally and closely” every year, especially amid material shortages.
The Flood Insurance market has also faced recent changes, including a more accurate flood-risk rating system that went into effect April 1 for all NFIP policy renewals. The new system considers more flood risk variables than in the past, and also takes into account the home’s replacement costs, Insurance Journal reported on March 31. Even with the latest rating models, though, any property owner could be at risk, he said.
“Mother Nature is rapidly progressing more quickly than some of the standards can react to it,” Turner said, pointing out that just south of the Outer Banks area where two homes recently collapsed is a region where Flood Insurance is not mandatory. “Part of the risk modeling that we use is starting to take climate change into account, but it could take time for some of that to catch up.”
Expert consultation can help homeowners mitigate risks
Coastal erosion causes an estimated $500 million in property loss and damage per year in the U.S., according to the U.S. Climate Resilience Toolkit. It also leaves many property owners at risk for injury or displacement. One man in Port Morien, Nova Scotia, told CBC in an April 4 report that his mother’s home was originally built at least 30 meters from a cliff’s edge but now sits just 3.5 meters from it, and a fence placed along the cliff now must be moved every two to three years.
When a property is threatened by erosion, it is important to have an expert involved, Willis said. “Get an engineer out there to make sure the foundation is solid,” she said.
Although lifting or moving an entire home is possible in extreme circumstances, there are other steps homeowners can take to mitigate their risk when that is not necessary. For example, the bottom of coastal properties should never be enclosed, Turner pointed out. “The water pushed up against it can cause the entire home to fail,” he said.
Insurance and risk management go hand in hand.
Depending on their location, homeowners may also need to consider hurricane shutters, hurricane straps and impact-glass windows, and check that all materials used on their home are designed for high wind and salt exposure. “You want to make sure the materials you utilize can withstand the intensity of where you have chosen to build your home,” Willis said. “We do look at these things from an underwriting standpoint, and if they have taken those mitigating factors, that helps with rate and deductibles.”
Inspections are crucial when buying a new home in a coastal area, but “construction and where and how the home is built is going to play the biggest role,” Turner said. “When selecting a coastal property, dune coverage is a massive thing they want to look at, and the type of construction. All of that, along with the pursuit of insurance, comes together to mitigate against financial loss. Insurance and risk management go hand in hand.”