02 Jul Flood Insurance for Home and Business Owners: Why It’s Essential
Flood insurance rates are changing – Are you prepared?
Don’t get caught off guard. Prepare for unexpected disasters by ensuring you have coverage for flood damage before it happens. 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 disasters strike—like Hurricane Sandy, one of the most devastating hurricanes in U.S. history that hit Lindenhurst, New York in 2012—people face massive losses and costly cleanup. Some never recover, leaving behind abandoned homes that become dangerous eyesores and cause property values in the area to drop.
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. Hurricane Sandy eroded beaches, knocked out electricity, and forced thousands to evacuate. Governor Cuomo estimated the damage at $19 billion and stated that restoring New York and New Jersey would require $32.8 billion.
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.”
Make sure you understand what your policy includes because many flood insurance policies exclude damages you might assume are covered. Coverage details, benefits, and deductibles vary widely between policies and come with a broad price range. Read about what damage is covered here.
Who is required to have flood insurance?
If you’re buying or refinancing a home in a flood zone, banks won’t approve the loan without flood insurance. The U.S. government also requires flood insurance for homeowners with federally backed mortgages in high-risk zones or for those who have filed a flood claim or received federal disaster assistance.
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. Flood insurance offers two basic policies. One covers building property up to $250,000, while the other covers personal property up to $100,000.
The NFIP, managed by the federal government, provides standard flood insurance policies. However, private insurers offer excess flood coverage for amounts above $250,000. Previously, most private insurers avoided flood policies due to limited tools for accurately assessing risk and setting fair premiums. 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. These changes, which took effect in October 2020, mark some of the most significant reforms in NFIP history by linking premiums directly to actual flood risk.
The price of flood insurance is currently based on a number of factors, including flood risk. FEMA introduced the current risk calculation methods in the 1970s, relying almost entirely on flood hazard maps. These methods have seen very few updates 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.
Flood Maps
The new program will continue using FEMA flood maps to reassess flood risk. However, it will also include additional data sources to create a more accurate property-specific rating system. This change means some homeowners may see higher premiums, while others may benefit from lower rates. Rates will depend on several factors, such as the type of flood risk, distance from the coast or flood source, and the cost to rebuild. Other key data points include U.S. Geological Survey data, FEMA claims history, National Flood Insurance Program (NFIP) policies, NOAA data, Army Corps of Engineers reports, and third-party flood models.
The updated Risk Rating 2.0 system focuses on proximity to flood sources and actual replacement costs to deliver fairer and more personalized premiums.
Preparing ahead of time is key to recovering from flood damage. No matter where your home or business is located, secure proper flood insurance coverage. Contact your local agent today to find out how the new Risk Rating 2.0 system impacts you and your flood insurance policy. Remember, your coverage takes effect after a 30-day waiting period—so act early and avoid last-minute risks.