A powerful storm system that tore through a massive swath of the U.S. on January 11 and 12 was responsible for the tragic loss of 11 lives, cutting off power to hundreds of thousands of households and putting more than 20 million Americans under flood watch.
The deadly storms in the South and Midwest brought snow, ice, strong winds, tornadoes and flooding from Texas to Alabama, through Missouri and into Michigan; the dangerous conditions cancelled more than 1,100 flights out of Chicago and closed roads in multiple states.
“Unfortunately, Mother Nature wins these battles every single time,” said Brad Turner, National Product Manager, Flood, Burns & Wilcox, Morehead City, North Carolina. “Storms like this can cripple a community and it can take a very long time to recover, especially when you have multiple perils at once.”
Flooding creates serious risks, high costs
While communities assess the full extent of the damage, the storm system’s wrath underscores the havoc natural disasters can wreak—especially when water is involved. Flooding affects about 250 million individuals around the world each year and is the most common and costly type of natural disaster in the U.S., accounting for more than $845 billion in losses since 2000. In Canada, floods are the most costly natural disasters in terms of property damage and have made up 40 percent of all recorded natural disasters in the country since 1900.
“Unfortunately, Mother Nature wins these battles every single time. Storms like this can cripple a community and it can take a very long time to recover, especially when you have multiple perils at once.” –Brad Turner, Burns & Wilcox
“Water is very powerful,” Turner said, noting that both coastal and inland flooding can be catastrophic. “Quite often 20 to 50 percent of the value of the home is lost. In the worst-case scenario, it is a total loss.”
A single inch of water in your home can lead to $25,000 in damages, according to the Federal Emergency Management Agency (FEMA), and Turner said more recent estimates put that figure closer to $42,000. Yet frequently flooding incidents involve at least 5 to 6 inches of water. Costs in the aftermath of flooding can include repairing foundations, replacing drywall, removing debris and updating older buildings to code.
“I have seen flood loss scenarios involving ankle- to knee-high water. It is common,” Turner said. “Flooding in general is a ground-up exposure. There are many small nuances in a loss scenario that can add up very quickly.”
While a Homeowners & Dwelling Insurance policy can protect against wind and other storm-related losses, it will not cover flooding—a fact that many homeowners learn too late, Turner said, and the reason Primary & Excess Flood Insurance is so critical.
“Many homeowners are not aware that flood is not covered by their Homeowners Insurance policy,” Turner said. “Flooding is one of those perils that can be the most devastating. It actually causes the most uninsured damage in the U.S.”
After Hurricane Harvey in 2017, which caused an estimated $125 billion in damages, the Consumer Federation of America reported that a large majority of homeowners would have to pay out of pocket to make their homes livable. With no coverage in place, homeowners may seek aid from the federal government; however, the process can be time-consuming, aid may be limited and frequently consists of long-term loans that must be repaid. Following Hurricane Katrina in 2005, some displaced residents spent five years or even longer awaiting assistance.
“That is a harsh scenario, but it is reality,” Turner said. “Flood Insurance is very important.”
Floods on the rise worldwide
Scientists indicate that the extreme weather and rising sea levels caused by climate change have increased the likelihood of flooding around the world, especially in low-lying areas. The global mean sea level has risen 8 to 9 inches since 1880, and reports estimate that high-tide flooding in many U.S. coastline locations is now 300 to 900 percent more frequent than it was 50 years ago. In coastal areas, reports estimate $135 billion in property could be vulnerable to chronic and disruptive flooding by 2045.
“Many homeowners are not aware that flood is not covered by their Homeowners Insurance policy. Flooding is one of those perils that can be the most devastating. It actually causes the most uninsured damage in the U.S.” –Turner
The need for Primary & Excess Flood Insurance has never been greater. The latest winter storm system was “not entirely surprising,” Turner said. “All 50 states have flooded in the past year,” he noted. “There is a rising trend of these weather events, and they are becoming more volatile.”
Although flooding incidents that make national headlines may seem relatively uncommon, flooding occurs daily. In September 2019, flash flooding in Davidson County, South Dakota caused more than $5 million in damages. In August, flash floods in northern Virginia led to at least $14 million in damages, including $7 million in damages to 277 homes and businesses.
“Flash floods happen every day, every week, every year,” said Turner. “You are probably not going to hear about that in the news, but you certainly have loss scenarios that happen every day, related to natural rainfall.”
Flooding incidents and flood damage are also intensified by increased density and urban development in the U.S. and in Canada. Urbanization is on the rise in North America and beyond, with more than two-thirds of the world’s population expected to live in urban areas by 2050.
“We are starting to see more devastation based on these events where there is a higher concentration of property,” Turner added.
Options and key considerations for Flood Insurance
The private Flood Insurance market is growing, due in part to the Biggert-Waters Flood Insurance Reform Act, which went into effect in July 2019. This change has brought homeowners in high-risk areas—who are required to secure Flood Insurance as a condition of their federally-insured mortgage—more options for purchasing private Flood Insurance. Previously, coverage through FEMA’s National Flood Insurance Program was the only economically feasible option for some homeowners.
“There are many options available for Flood Insurance, including more extensive policies than were available even five years ago,” Turner said.
Although homeowners have often relied upon FEMA flood maps to assess their flood risk, Turner said these maps are often outdated and cautioned that those homeowners in ostensibly “low-risk” zones against relying upon what may be a false sense of security.
“Over 25 percent of flood losses in the U.S. actually occur in low-risk flood zones,” explained Turner. Homeowners living in those zones, which are determined by FEMA flood maps, are not legally required to carry Flood Insurance. “A lot of these flood maps can date back 30 years,” Turner said. “Now more homeowners are becoming aware that they are at risk even though the flood map is telling them otherwise.”
Despite growing awareness of flood risks, many homeowners who do purchase private Flood Insurance are underinsured. For example, they may only purchase a Flood Insurance policy that covers their home loan amount rather than their home’s full value.
“The most important thing is to have a good relationship with an insurance broker or agent who can provide proper counsel. Flood is one of those perils that certainly requires experience to properly assess any particular risk.” –Turner
“[Being underinsured] can prove to be a mistake,” Turner said. “Homeowners should seek higher limits in their Flood Insurance policies as well as full coverage for their contents.”
Flood Insurance policies for homeowners in low-risk areas are typically highly affordable, Turner said. Another advantage of private Flood Insurance, he explained, is that there is no waiting period to obtain coverage. Private Flood Insurance policies often take effect the same day they are purchased.
All homeowners should discuss their risk and many other considerations regarding their Flood Insurance needs with a knowledgeable insurance broker or agent, Turner said.
Commercial Property Insurance goes hand-in-hand with Primary & Excess Flood Insurance, Turner added, with both public and private options available. Given the higher value of commercial property and the potential for lost business income, “insuring to full limits becomes even more important.”
“Flooding is one of the scariest disasters, because it is one of the most uncontrollable. It can be less predictable and is more volatile than other disasters,” Turner said. “The most important thing is to have a good relationship with an insurance broker or agent who can provide proper counsel. Flood is one of those perils that certainly requires experience to properly assess any particular risk.”
This information was provided by Burns & Wilcox, North America’s leading insurance broker and underwriting manager. As with any coverage need, an insurance broker or agent must be consulted.