According to this article, only 15% of homeowners in the Houston area have flood insurance:
As of August 2016, just 15% of the 1.6 million homes in Harris County, where Houston is located, had flood insurance, according to emailed data from the Insurance Information Institute, and only 28% of the homes in “high-risk” areas for flooding.
We all know the reasons why people don’t buy flood insurance. They think, “It’ll never happen to me.” It’s too expensive. They don’t have to. They don’t know they need it. Or, they’re told they don’t need it in idiotic articles like this one that can be found plastered all over the internet:
“Unless you live in a flood plain or an area with a history of water problems, don’t even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.”
Last month, in a blog post about healthcare, I raised the issue of whether we should explore an alternative system to how we currently insure catastrophic exposures to loss:
I’ve opined for years that we should abolish the NFIP and windstorm pools, mandate property coverage by all owners and tenants, and include flood and windstorm damage in standard homeowners, commercial property, auto, and other policies. Minimum and maximum catastrophe loadings could be established so that there is some degree of subsidization in more risky areas. CRITICAL, though, would be mandated loss control measures, including zoning restrictions, building codes, and so forth. Loss prevention and reduction would be absolutely necessary components of an insurance program, as they should be now.
The reality is that, unless the risk of loss is almost definite and/or coverage is mandated, people simply will not buy the coverage. And if the risk of loss is high, the cost of insurance is either unaffordable or results in adverse selection and repetitive losses. While the focus today is on flood, this holds true for other catastrophic exposures like earthquake.
Is this doable? Should property insurance be mandated and include catastrophe premium loadings similar to civil disorder charges applied in the late 60s? Can the risk of loss be spread enough that the private sector can manage it? Can commerce and governments work together to invoke loss control measures to mitigate loss to manageable levels? What are the issues? What are the obstacles? Can they be overcome?
Your comments are welcome below. And, please, no political rants, just rational and respectful arguments, points and counterpoints.
Bill Wilson
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From Cliff Treese…how the Netherlands does it:
http://www.nytimes.com/2013/02/17/arts/design/flood-control-in-the-netherlands-now-allows-sea-water-in.html
https://www.edf.org/blog/2015/08/19/what-we-can-learn-1000-years-dutch-flood-management
I agree with Mr. Treese and had read about some of this before of the Netherlands dealing will flood control. I would suggest we pursue immediate discussions with them via our US Army Core of engineers. We have nothing to lose and much to gain on what they have already proven to work. We need to get to this now while still a country on speaking terms with the USA.
“The problem with Americans is that we’re fixers rather than preventers.” – Gen. Jimmy Doolittle
Ever since the record floods in Northern Colorado four years ago, I now advocate to our mandatory HO CE classes that agents should offer flood to everyone. In those floods, over 60% of damage occurred outside mapped zones. For consumers and agents alike, the purchase decision is like playing Russian roulette with unacceptable outcomes. Limited sources of flood insurance makes this coverage too pricey for most consumers. I am hoping that privatizing this coverage will provide more supply with less cost as the first step. Long term, it is my hope that commercial carriers will include this #1 occurring peril as a standard peril just like fire, wind, etc. In the short term, the industry may need to work on better models to handle coastal, hurricane floods.
John, so you would disagree with this advice on Forbes’ web site?
“Unless you live in a flood plain or an area with a history of water problems, don’t even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.”
https://www.forbes.com/2010/06/22/useless-insurance-policies-personal-finance-policy.html
I disagree with Forbes’ basic premise. Since I have been tracking the larger US flooding events, I am just amazed at how existing flood mapping is usually not a good indicator for flooding. Perhaps, they worked historically for riverine and hurricane related flooding but now they are finding other variables i.e. Storm Surge, increased rainfall events likely caused or influenced by climate change, wildfire induced flooding, and the list goes on. Maybe an evolving question is how often are here maps wrong? From my reading, most flood maps are political in nature. With all the new technology available, I know the private companies are going to tap these new tools as the basis for underwriting this risk. The brave new world of technology and insurance.
I have often wondered about mandating these coverages I find it odd that mortgage companies make their mortgage holders insure their homes but not for flood or quake. Don’t let hey want protect their investment fully?. What if as a start all mortgage backed homes were mandated and not those who were owned free and clear ? Let the free and clear guy roll the dice.
Mandating means the family on the steep hill is supplementing the program for everyone and in turn will look like a tax to many. I have seen some folks on hills flood though during my ime as an agent.
The model is broken as it is and it needs to be fixed.
Chip, good points. One key is that there MUST be strict laws in place that restrict or control building and they must have some retroactive component for the use of flood insurance proceeds to either abandon the property or use the funds for elevating the properties and meeting codes.
I find it interesting that no one complains at real estate closings about the enormous cost of title insurance (don’t get me started) but go nuts if they are forced to buy flood insurance.
I agree with your points fully, Bill.
https://www.insurancejournal.com/magazines/mag-features/2021/07/05/621113.htm