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Hurricane Harvey and Insurance Policy Holders

Less than 20% Harvey victims have flood insurance as FEMA braces for tons of claims

Roger Yu, USA TODAYPublished 4:52 p.m. ET Aug. 29, 2017 | Updated 10:46 a.m. ET Aug. 30, 2017


When the rain finally stops, a vast majority of homeowners in Southeast Texas digging out from Harvey’s aftermath will confront another arduous obstacle — finding enough money to repair uninsured properties.

Estimates indicate that only about one-in-five homes in the greater Houston area are covered by flood insurance, a scenario that will likely drive hundreds of thousands of people and business owners to abandon their properties or take on heavy debts, not to mention heightened pleas from local governments for more federal subsidies.

The Consumer Federation of America estimates only about 20% of homeowners with flood damage in the region have insurance protection. Harvey could result in as many as 50,000 claims for wind damage by homeowners, and “as many as two or three times” as many claims for federal flood insurance, it says.

As of April, only about 15% of homes in Harris County, Texas — with 1.8 million homes and home to Houston, the nation’s fourth largest city — currently have active policies from the National Flood Insurance Program (NFIP), according to risk consulting firm Aon. Similarly, take-up rates are lacking in neighboring counties, Aon said.

In total, the storm will result in $30 billion to $40 billion in property damage, estimates Moody’s Analytics.

Federal flood insurance dominates market

With rain still falling, total insurance damage estimates are hard to come by and damage assessors won’t be able to get a more accurate assessment until it’s safe to do so. But the amount paid by insurers will likely fall somewhere between the payouts of Hurricane Katrina in 2005 and Hurricane Sandy in 2012, estimates Tom Santos, vice president of federal affairs of the American Insurance Association.

Katrina resulted in $14 billion insured losses from floods while Sandy incurred $8.4 billion, he said.

The rush of flood claims will take a heavy toll on the already burdened NFIP, the insurance program run by the Federal Emergency Management Agency.

More than 90% of all flood insurance policies in the country are issued by NFIP. And homeowners whose property is located in designated flood zones are required to buy a policy, a requirement enforced by mortgage-issuing banks. Much of Southeast Texas was not considered FEMA-mapped zones in risk of flooding despite a rapid increase in population in Houston since 2000 that has pressured its drainage systems.

“Most people in these lower risk areas don’t buy flood insurance,” says Carolyn Kousky, director for policy research and engagement at the Wharton Risk Center of the University of Pennsylvania.

Those who’ve paid off their mortgage or have a home bequeathed from parents — even if they are in the flood zone — are often reluctant to buy a flood policy.

Renters can also buy flood insurance from NFIP but many aren’t aware of it, Santos says. Typical homeowners or renters’ insurance policies generally don’t cover flood-related damages.

Complicating the issue is that NFIP caps payouts for residential homes at $250,000 and $500,000 for commercial properties. Many homeowners with a NFIP policy don’t carry surplus insurance even if they own more expensive houses. And repair bills exceeding the cap could be financially burdensome for some homeowners.

Federal help may be limited

Those without any kind of flood insurance can turn to government assistance programs for relief. But it may not be sufficient for many affected individuals. FEMA’s disaster relief fund grants only about $5,000 on average in payouts per individual, Kousky said. “It doesn’t make people whole,” she said. Without flood insurance, “you’re in trouble.”

The staggering amount of help needed for homeowners in Texas will likely mean FEMA will have to come up with more money to cover losses and award relief funds. And the politics of FEMA funding will lay bare the agency’s financial struggles as well as the Trump administration’s policy priorities. “It will be a big payout for NFIP,” Kousky said.


Acting Secretary of Homeland Security Elaine Duke warned Wednesday that recovery from Hurricane Harvey will take years and promised that the federal government was in it “for the long haul.” (Aug. 30) AP

FEMA has about $1.5 billion in cash and $6 billion in a line of credit for its flood insurance program, while the agency owes the Treasury Department about $25 billion from its past payouts. If Harvey-related claims exceed FEMA’s coffers, the agency will have to go to Congress for permission to borrow more. The agency’s current borrowing limit is $3 billion, but Congress will likely have to raise the amount.

Commentary: What have We Learned from Hurricane Harvey and Insurance Claims Associated with Natural Disasters?

The obvious answer is to have flood insurance in certain parts of the country where hurricanes are not only possible but inevitable.  But this applies to all natural disasters and not specifically hurricanes or tornadoes.  Look at Southern California for example and the threat of earthquakes.   Many homeowners have hazard insurance and most condo owners have an H-06 insurance policy for the interior coverage of the unit.  However, have you reviewed your homeowners insurance policy to see if you are protected from an earthquake?  In 1994, Southern California suffered a significant earthquake (better known as the Northridge Earthquake) which left many homeowners scratching their heads as to how they would pay for home repairs.  This resulted in homeowners having to borrow against their credit cards for repair costs and many foreclosed on their homes.  One thing that history has taught us is that history repeats itself.  It is very important for the well being of your family and for your peace of mind to inquire and obtain specific insurance policies in regions of the country that can be effected by natural disasters.  Not entertaining such specific policies is foolish and can have significant consequences as we witnessed in Houston, Texas recently.

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