A combination of rapid snowmelt, ice jams and torrential rains over several days in mid March left swaths of the Midwest and Great Plains states submerged and more than 10 million people under flood warnings by March 17.
Powered in part by a “bomb cyclone”—when a rapid drop in barometric pressure leads to hurricane-force winds—flooding along the Missouri, Mississippi, and other rivers has caused evacuations and widespread damage in Iowa, Missouri, Nebraska, Wisconsin, Minnesota and other states, prompting several to declare states of emergency.
The flooding has exacted a tragic toll in lives, caused major damage to homes, businesses, and other property, and will result in lost income and lives put on hold through months of recovery. The magnitude of the current crisis underscores why, despite the threat of tornadoes, wildfires, hurricanes and other disasters, floods represent the number one natural hazard in the United States, according to the Federal Emergency Management Association (FEMA). Floods cause about $6 billion in damage in the United States each year.
You do not need to live in a “flood zone” to be affected by floods
As people watching or reading news reports on the floods extend heartfelt sympathy to sufferers, many are unaware of the real risks that flooding can pose to their own property, even if they feel far removed from flood-prone rivers or low-lying coastal areas.
“One of the biggest misconceptions is that some people are in flood zones and others aren’t,” said Brad Turner, National Flood Product Manager, Burns & Wilcox, Morehead City, North Carolina. “While there are varying degrees of exposure, depending on your location, essentially the entire United States is a ‘flood zone.’”
In fact, nearly a third (30 percent) of Flood Insurance claims occur in areas designated as low or moderate risk, according to FEMA. And it does not take a hurricane or bomb cyclone to trigger significant damage. A few days of heavy rain can swell seemingly calm streams and rivers to dangerous levels. Even a new construction project can alter runoff patterns and damage nearby homes and businesses. It does not take millions of gallons of water to cause destruction. As little as one inch in a home can cause $25,000 in damage.
Despite such risks, many homes and businesses go uninsured against floods. According to Turner, people often make such decisions based largely on whether or not they are required to buy Flood Insurance as part of their lease or mortgage—assuming that if there’s no requirement, they must be safe. “What’s really unfortunate is that many of those people could get a Flood policy for a few hundred dollars a year, depending on their location,” Turner said.
Others believe that they are already covered through their lease agreements or their property insurance policies. Yet in fact, most such policies exclude floods. In other words, if a freak storm lays waste to your living room or showroom, you could be on the hook for thousands of dollars in repairs.
Still others may assume that if a storm destroys their home or business, federal disaster aid will come to the rescue. “That can be a very long process, with limited funding,” Turner said. Such aid often involves low-interest loans that the recipient must repay.
Is federal insurance enough?
Many homes and businesses that do carry Flood Insurance—especially in designated high-risk areas—are protected by policies under the National Flood Insurance Program (NFIP). Administered by FEMA, the NFIP, which celebrated its 50th anniversary in 2018, provides a combined $1.2 trillion of coverage through more than 5 million policies.
NFIP can be a crucial source of coverage and is open to homes and businesses within and outside high-risk areas. Yet it may not be the entire solution, or the best one for all situations. For example, maximum NFIP policy limits are $250,000 for a house and $100,000 for its contents, and $500,000 for a nonresidential business and $500,000 for its contents. And NFIP coverage doesn’t include potentially costly provisions such as additional living expenses and loss of business income while repairs are being done. The ability to cover the total value and exposure is vitally important.
“We have the technology … to look at any particular location and help you understand what your actual risks of flooding are.”– Brad Turner, Burns & Wilcox
Individuals and businesses seeking adequate coverage have the option to supplement or substitute what is available via the NFIP with Primary and Excess Flood policies.
Burns & Wilcox offers Primary and Excess Flood Insurance with policy limits up to $5 million in total insurable value for homes, with available coverage for business income or living expenses that NFIP does not cover. Excess policies can be written with limits up to $50 million in aggregate coverage for homes, lost rental income and additional living expenses.
Burns & Wilcox Commercial Flood Insurance policies can provide limits up to $5 million Primary Flood and $50 million Excess Flood as well, with coverage available for buildings, contents and business interruption.
“For businesses, some of the most significant losses from floods are indirect,” Turner explained. “For example, a retail shop that’s flooded may have to shut down for six months. Replacing damaged property is important, but they are also going to lose six months of income. That is something that NFIP insurance does not cover.”
Catastrophic floods are as old as time, and snowmelt in the Midwest has long caused events similar to the disaster of the past week. Yet the threat of damaging floods has grown steadily in recent decades, thanks to factors such as rapid urbanization, changes in land use and, particularly, climate change, according to The National Climate Assessment. Heavy rains have increased by 20 percent over the past half century, and floodplains are expected to grow by an estimated 40 to 45 percent over the next 90 years, according to American Rivers. And the rising threat extends across national boundaries.
More Canadians seeking coverage
In Canada, for example, the number of floods has risen in every decade over the last century, according to Freshwater Alliance, and the five most damaging floods in the nation’s history have all occurred since 2010.
Unlike the United States, Canada does not have a government-administered flood insurance program. Yet amid recent reports that 20 percent of Canadian homes are at high risk for floods, the national government has been debating whether or not to start one.
“As policyholders learn that annual premiums ranging from $150 to $800 can garner (Flood Insurance) policies with limits from $25,000 to $250,000, it is becoming more common to incorporate that into their coverage.” – Carol Bolduc, Burns & Wilcox Canada
Meanwhile, businesses and homeowners are showing an increased interest in investing in flood insurance, according to Carol Bolduc, Personal Insurance Manager, Burns & Wilcox Canada, Montreal, Quebec. In provinces such as Quebec and Ontario, “Flood Insurance is fairly new. Until recently, it was not sold by the major domestic insurers,” Bolduc said.
“In the last three or four years, we’ve been seeing more frequent floods,” she added. “And in 2017, we had a lot of harsh floods, and a lot of territory in Quebec and Ontario was flooded. Domestic insurance companies have added Flood Insurance as an option,” she said. “As policyholders learn that annual premiums ranging from $150 to $800 can garner policies with limits from $25,000 to $250,000, it is becoming more common to incorporate that into their coverage.”
Wherever you are located, do not assume that the Flood Insurance you were required to buy means you are sufficiently covered or, if you were not required to buy Flood Insurance, that you are safe.
Start by asking your insurance broker for a detailed rundown of what is and isn’t covered under your current policy, and what additional coverage you may need, Turner said. “We have the technology, from satellite modeling, to model worst-case scenarios, to look at any particular location and help you understand what your actual risks of flooding are.”
As with any coverage need, an insurance broker or agent must be consulted.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager.