02 Jul Be prepared – Why a home or business owner needs flood insurance
Flood insurance rates are changing – Are you prepared?
Don’t get caught off guard. Make sure you are prepared for an unexpected catastrophe, especially when it comes to making sure you are covered for damage left behind from a flood. According to Federal Emergency Management Agency, FEMA, “floods are the number One natural disaster in the United States”, yet the Insurance Information Institute reports “only 18 percent of Americans have flood insurance”. When a disaster strikes, like when one of the most devastating hurricanes in US history, Hurricane Sandy that hit Lindenhurst, New York in 2012, people are left with a huge loss and a mess to clean up. Some never do pick up the pieces, and the city is left with abandoned homes which result in dangerous eye sores and declining property rates for those left behind.
Hurricane Sandy hit the east coast, New York City, and Long Island with a wallop, killing more than 40 people, destroying more than 100,000 homes, leaving 2,000 homes uninhabitable along with 250,000 vehicles, and closing even parts of the New York City Subway system that were under water. It closed schools, hospitals, and the Statue of Liberty. Beaches eroded, electricity was out, and thousands were evacuated. According to Governor Cuomo, the damage was estimated to be about $19 billion, leaving $32.8 billion that was required for restoration across the state and into New Jersey.
So, who needs flood insurance?
It doesn’t have to be this catastrophic for you to need flood insurance since just a few inches of water can create costly damages inside your home. While certain areas are more likely to experience floods, it can happen anywhere. Even if you don’t live near the shore, you are at risk for a flood. You may even think you are covered, but are you? 25 percent of all flood claims actually come from those living in a low to moderate risk area.
Most standard home owner policies don’t cover damage left behind after a flood. For insurance purposes, flood damage is considered to be water rising from the ground up caused as a result of rising bodies of lakes, rivers, streams, and oceans, and not water falling from the sky. The official language is:
“the overflow of inland or tidal waters including a storm surge, mud flow, or the rapid accumulation of surface waters that can occur from a sudden rainstorm.”
Be careful to understand what your policy includes, since there are a lot that flood insurance won’t cover that you may have assumed was taken care of. Exactly what damage is covered is going to vary greatly from policy to policy, and the benefits and deductibles will also fall within a wide price range.
Who is required to have flood insurance?
If you are purchasing or refinancing a loan on a home located in a flood zone, banks won’t approve the loan unless borrowers are insured. The United States government mandates that homeowners who have both a federally backed mortgage and who live in a 100-year flood plain, high-risk flood zone or anyone who made a claim or were assisted from the government from the government after a flood.
Currently, flood insurance is mostly acquired from the US National Flood Insurance Program NFIP, managed by FEMA. Everyone who lives in a participating community can purchase flood insurance. There are two basic policies: One that covers the building property, up to $250,000 and one that covers personal property for as much as $100,000. Although, this is a federal government implemented program, flood policies are also sold by private insurance companies who sell excess flood insurance for those wanting more than the $250,000 coverage.
For years, private insurance companies have steered clear of underwriting flood policies since they have not had the tools needed to accurately measure the risks involved to assess a proper premium cost. Today, with better mapping data, these private insurers are beginning to step into the market.
Changes are coming
After several catastrophic hurricanes in the United States, flood insurance and FEMA coverage is changing. These changes are going to affect the rates you pay and how much is covered. The new plan is called Risk Rating 2.0. Set to become effective in October, 2020, these changes are going to be some of the most significant reforms in NFIP history and will connect premiums with the actual risk.
The price of flood insurance is currently based on a number of factors, including flood risk. The existing risk calculation methods have been almost solely based on flood hazard maps from FEMA and were put into place in the 1970s with very little adjustments over the years. The prices set are largely based on whether your home is located inside or outside of the 100-year flood plain. Homes that are located along the coast currently pay based on the town or village where the home or business is located, so everyone pays the same amount.
The new program will still use these flood maps to reassess flood risk but will also use additional sources to determine a rating system that is designed to deliver insurance rates that reflect a more accurate individual property flooding risk. This change will most likely lead to higher insurance rates for some and lower rates for others depending on factors of what type of flood, distance from coast or other source of flooding, cost to rebuild, U.S. Geographical survey data, FEMA flood maps, National Flood Insurance Program NFIP policies and claims, National Oceanic and Atmospheric Administration NOAA, the United States Army Corps of Engineers data sets, Sea, Lake and Overhead Surges from Hurricanes model data, as well as third-party flood models. This new Risk Rating 2.0 will assess premiums by proximity to a coastline and how much it will cost to replace.
Being prepared ahead of time is the key to recovering after flood damage. No matter where your home or business is located, make sure you are covered in the case of a flood. Contact your local agent today to see how the new Risk Rating 2.0 system will affect you and your flood insurance policy. Keep in mind that there is a 30-day waiting period before the coverage will begin, so don’t wait till the last minute.