Financially Underwater Without Flood Insurance

Banking on hope

Many homeowners mistakenly believe flooding is covered by a standard homeowners policy, notes Chris Heidrick, owner of Heidrick & Co. Insurance and Risk Management Services in Sanibel, Fla. Others drop their flood insurance soon after their home is paid off because their area hasn’t flooded before. That’s risky. “If you can’t afford to rebuild your house out of savings, you really ought to have flood insurance,” he says.

But for many retirees, even subsidized federal policies at cut rates can be expensive. Rates in the highest-risk areas can be $2,500 a year or more, Heidrick says, compared with around $450 a year outside these areas.

Hurricane Florence flooded homes in Lumberton, N.C., in September 2018.

Johnny Milano/The New York Times/Redux

Many people who live outside the highest-risk areas believe they don’t need flood insurance because FEMA maps show they are at a low risk, Heidrick adds. Then the storm arrives. Fewer than 10 percent of households in the Carolinas affected by Hurricane Florence in September are likely to have had federal flood insurance, according to Milliman, an actuarial company. A Washington Post analysis of FEMA data found only 17 percent of homeowners had flood insurance in the Texas areas hit hard by Hurricane Harvey in 2017.

Starting over will be particularly difficult for older Americans, Heidrick says: “There is less time to rebound.”

Rick Moore, a 58-year-old civil engineer from Tallahassee, Fla., was lucky. He pays about $1,000 a year for flood insurance on his four-bedroom beach house in Mexico Beach, which was built on pilings to allow floodwaters to sweep beneath. Moore says he’s not sure he would have kept the pricey insurance if he had paid off his mortgage. The hurricane completely destroyed Moore’s house, but he’s already planning to rebuild. “It may be a speed bump, but we are looking forward to retiring there,” Moore says.

A challenged program

The NFIP has worked for people like Moore, but the program is on life support, overburdened by payouts from several major storms that brought extreme damage. It has left taxpayers on the hook for billions of dollars.

“It’s a program that should be a linchpin in the nation’s strategy to address escalating flood risks and the problem of sea level rise,” says Robert Moore, a flood insurance expert at the Natural Resources Defense Council (NRDC). “But in its current state, it’s a liability.”

AARP

Before Hurricane Michael, the program was more than $20 billion in debt, NRDC's Moore says, and that’s after Congress authorized $120 billion in disaster relief funding in 2017 and canceled $16 billion in outstanding NFIP debt. And the benefits are not spread out among policyholders. For at least 36,000 homes and businesses, the program has paid flood damage benefits more than once, according to FEMA data. 

Critics say the repeat payouts encourage homeowners to rebuild their homes in areas at high risk for floods, which leads to a cycle of additional claims. The process has led to stunning levels of government waste. In one case, a home in Spring, Texas, was repaired 19 times at a cost of more than $900,000, according to the New York Times. The house was valued at $42,000.

A call for change

The problems facing the NFIP have led environmentalists, insurance executives and  fiscal conservatives to push for change. So far, Congress hasn’t responded. In 2017, the U.S. House of Representatives passed a reform bill with a number of provisions to encourage private flood insurers to enter the market. The bill also includes rules to improve flood-risk maps and force disclosure of past flood claims to home purchasers. The Senate has not taken up the bill. “I wish I could say that Congress is motivated to help people and find a fix to a problem everyone knows exists,” says Moore at the NRDC. “But I haven’t seen anyone in the Senate step up.”