What's up with flood insurance?
In an ideal world, your home insurance would cover all risks, including flooding. But in this world, flood damage is excluded from most policies unless you've bought a rider, endorsement or separate policy. The marketplace for buying flood insurance is not in the best condition, and UP is among many that are working to improve it. Banks require borrowers in flood zones to carry flood insurance, but other than that, most people who aren't required to buy it...don't. That means the vast majority of people in the US aren't insured for flood damage, and the pool of people who buy it are mostly in high risk areas. That means flood risk isn't being spread widely enough to make it affordable, so the federal government has to subsidize the pricing for those who have to buy it.
What should a consumer do related to flood protection?
Consider the conditions around your home, get two quotes for adding flood coverage to your home or renters policy, then make an informed decision to buy or not buy it.
One example of why: Most of the communities that were devastated by flooding in South Carolina in 2015 weren't mapped as flood zones so the residents hadn't bought insurance.
Most people only have two choices for buying flood insurance: 1) The National Flood Insurance Program (NFIP), or 2) A "surplus lines" insurance company affiliated with Lloyds of London.
The NFIP was created by Congress after private insurance companies en masse stopped covering flood damage in the 1960's. It is a public/private partnership under FEMA that is largely controlled by private companies that contract with the government to provide services to the program. Surplus lines/Lloyds companies also sell flood insurance. Their policies provide similar, and sometimes better coverage than you get through the NFIP, but unlike the NFIP - the federal government doesn't subsidize their rates, so they tend to cost more than an NFIP policy. Surplus lines companies, also called "non admitted" insurance companies, don't have to fully comply with state regulations. A third option is the all-risk policies sold to owners of high value properties that don't exclude flood damage.
A large deficit and a scandal related to altered structural engineering reports on homes damaged by the 2012 Superstorm Sandy have brought the NFIP under intense scrutiny. The program will come up for Congressional reauthorization in 2017. In addition to concerns over the programs finances and claim handling practices, there are ongoing debates about whether flood insurance should be affordable or even available in coastal areas due to the realities of climate change and hurricane risk. Insurance companies, public officials and agencies, environmental advocates and property owners all are vocal stakeholders in these debates. United Policyholders recognizes and respects the conflicting considerations around flood insurance, but remains committed to helping existing homeowners in flood zones protect their assets through the purchase of flood insurance.
In addition to championing a marketplace where flood insurance is available and affordable through private insurance companies and the National Flood Insurance program, we support greater transparency and fairness in the flood claim adjusting process and access to justice for policyholders who get mistreated by insurers and/or adjusters..
For more information about our work for and with flood survivors in various states, visit our Roadmap to Recovery Program section and specific disaster blogs. For more information about our work related to climate change and insurance, visit our Climate Change and Insurance Guide.
For more, see UP's Executive Director Amy Bach's presentations to the NAIC on flood insurance availability and affordability.
UP is working through all three of our programs toward the following goals:
- Affordable, available insurance for existing homes in flood zones
- Realistic options for property owners who can't afford mandated flood insurance
- Flood coverage for dwellings and contents without surprises and major gaps in protection
- Realistic policy deadlines, fair claim handling and appeal and dispute resolution rules and processes
- A restructured National Flood Insurance Program that is well run, efficient and that deserves public trust
- Insurance company approaches to climate change that are measured and constructive