Nearly every county in the United States has experienced flooding in the past few decades, but just 4% of homeowners nationwide have flood insurance, according to the Federal Emergency Management Agency.
It's what experts call the flood insurance gap. Most homeowners insurance doesn't cover flooding. And while FEMA aid may be available to help people repair their homes after federally declared disasters, it often covers just a fraction of the costs.
That means when floodwaters come, people frequently are on their own to pick up the pieces. It's a reality communities across the country are facing after flooding hit parts of Texas, New Mexico and North Carolina in the past week alone. In all three states, the floods were caused by extremely heavy rainfall inland — a risk that's growing with climate change. A warmer atmosphere can hold more moisture. As temperatures rise, it's fueling more intense rainstorms that drop more water in shorter periods of time.
One solution: Homeowners, renters and businesses can buy flood insurance, which most people get through FEMA's National Flood Insurance Program, says Jeremy Porter, head of climate implications research at First Street, which assesses property risks from climate change.
Federal flood insurance offers up to $250,000 for homes and $500,000 for nonresidential buildings. People can buy policies that also cover the belongings inside their home, including clothing and furniture. The program is open to anyone who lives in one of the approximately 22,600 communities that have adopted certain standards to regulate development in their floodplains. Porter estimates that people living in more than 90% of U.S. counties are eligible. For people who want flood insurance but live outside of a qualifying community, they would have to go to the private market.
"It's clear that [flood] insurance protects property owners and it protects the communities," Porter says. "It ends up keeping property values from dropping, post-event. It ultimately ends up keeping properties from going into foreclosure."
In some places, though, federal flood insurance is unaffordable for many residents, and costs are rising around the country.
So, people "roll the dice, hope [a flood] doesn't happen," says Brian O'Connell, an analyst at insuranceQuotes, an online platform where people can compare and buy insurance. "And when it does happen — and we talk to people who it happens to — it's one of the worst things people ever experience in their lives."
Some see "life changing" flood insurance costs
The U.S. government created the National Flood Insurance Program in 1968 when private companies stopped offering coverage. The federal program, which is backed by taxpayers, has been chronically in debt, borrowing from the Treasury to pay claims.
Several years ago, FEMA began overhauling how the flood program sets its prices. Now, premiums are based on a home's value, FEMA says, and the flood risk an individual property faces. That's a more granular approach than the government used before. FEMA says one of the goals is to encourage actions that reduce flood risks.
As a result of those changes, the cost of federal flood insurance is surging in some parts of the U.S. In Louisiana's Plaquemines Parish, for example, where 9 out of 10 homes are at risk of flooding, people are looking at paying more than $5,400 a year for flood insurance, an average increase of more than 500%. That's on top of their regular home insurance costs.
"The guy with a million dollar house, he'll figure it out," says Anderson Baker, a retired insurance executive in Louisiana. "The guy with a $150,000 house, a couple hundred dollars extra a month, or $300 extra a month, that's a life-changing increase in his premium."
O'Connell of insuranceQuotes estimates a flood insurance policy is likely to cost around 30% to 75% of what someone already pays for homeowners insurance. There are companies that have started to offer flood insurance again, which creates some competition for the federal program, says Porter of First Street. However, private insurers only cover 12% of the market, according to First Street.
For some people, taking on the added expense of flood insurance isn't much of a choice. Homes in high-risk flood areas that have mortgages from government-backed lenders have to have flood insurance. Properties that have received federal disaster aid in the past also must be covered by flood insurance to qualify for future assistance. And in Florida, the state-backed insurer of last resort, Citizens Property Insurance Corp., has started requiring homeowners that have coverage for wind damage to also buy flood insurance.
If a lot more people bought flood insurance, it would drive down the cost of coverage and could entice more private insurers into the market, says Michelle Osborne, director of the Risk Management Institute at Campbell University.
But as things stand, the cost of flood insurance is often a dealbreaker for people, says O'Connell of insuranceQuotes, especially since many doubt they need protection.
"There's this misapprehension that if I'm not in a flood zone, then I shouldn't have to get flood insurance," says Baker, the retired insurance executive. "But everybody's in a flood zone. People at the top of a mountain are in a flood zone. They're just in a good flood zone."
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