The EBB and Flow of Flood Insurance
An Informative Special Feature for Homeowners and Small Businesses
By Richard “Gordy” Bunch III
President & CEO – TWFG
The Woodlands Financial Group
The Woodlands, TX – July, 13, 2012 – Many homeowners go to sleep at night with a false sense of security. They have protected their investments in homes, cars, and personal belongings with insurance in case of a disaster. However, the very same homes and personal belongings they assume are protected by insurance remain vulnerable to the most common of all natural disasters – flooding – unless they also have flood insurance. Homeowner, condo, and business insurance policies normally do not cover flooding damage. Fortunately, these same homeowners could easily roll over and go back into a sound and secure sleep if they had simply signed up for a U.S. government-sponsored program known as NFIP – the National Flood Insurance Program. This FEMA program was officially renewed by congress on June 29th of this year and has been extended for five years until September 30, 2017. President Obama has already signed the “Biggert-Waters Flood Insurance Reform and Modernization Act of 2012” into law, ensuring “stability and confidence to the flood program and the U.S. housing market,” according to major NFIP providers.
Richard “Gordy” Bunch, president and CEO of TWFG, (www.twfg.com) one of the country’s top insurance service agencies, was recently recognized with one of FEMA’s three “National Agency of the Year” awards for his company’s work with flood insurance and flood programs. TWFG is headquartered in The Woodlands, Texas but it has almost 3,000 company and affiliated agency branches located throughout the United States. Bunch and FEMA are concerned that there is a broad lack of knowledge and understanding about the risk and damages caused by flooding and that flood insurance is easily and inexpensively available to protect homeowners and small businesses. The average flood claim is $15,000 while an average flood insurance policy costs just over $350 a year. Business owners are just as vulnerable as homeowners. Their routine business insurance policies generally will not protect them against flooding.
“Everyone talks about their home or business being located in, or not being in, the “100-year flood plain.” Bunch laments the fact that this unfortunate label lulls people into a false sense of security and is one of the primary sources of misinformation and misunderstanding about the need to be protected by flood insurance. “The 100-year flood rule simply means your home or business has a one percent chance of flooding every year – not once in every 100 years,” he explains. According to Bunch, “every inch of America is in a mapped flood zone. There are no non-risk zones. Almost 25 percent of all NFIP flood losses occur in areas that are not mapped as high-hazard zones.” Bunch said that flooding nationally and in Texas is more common than most people realize. “Hurricanes are not the only cause of flooding. Development, expansions, and concrete are major causes of flooding in Montgomery, Harris, and Fort Bend counties,” Bunch says. “New roads and housing developments reduce the land’s natural ability to absorb water. Runoff can multiply as much as six times when land is paved over.”
Flood zone determinations are made on a property-by-property basis through a master data base of every U.S. home available to agents contracted to write NFIP insurance, like TWFG. Most home closing documents require that risk determination and most lenders require the determination as a condition to approving and funding a mortgage on homes. Flood insurance is required on homes in high hazard zones that carry a mortgage provided by a federally insured bank. If flood insurance is “forced” into the mortgage by the lender, it is invariably at a much higher expense. Concerned owners also need to be aware that flood zones change as conditions in areas change. Today’s low risk area could become tomorrow’s high risk zone. High risk zones have a six times greater risk of flood than fire, and a one-in-four chance of flooding over a 30-year mortgage.
Bunch said any residential or commercial building with two exterior walls and a roof are probably qualified for coverage according to the NFIP manual. Another little known fact about flood insurance, Bunch says, is that there is no need to “shop” for this insurance since all rates are set by NFIP. Rates are quoted on a scale that ranges from a $20,000 building to a $250,000 building and whether the structure has a basement or enclosure. Supplemental contents coverage can then be added at modest additional cost. He explains that NFIP is a national program subsidized by FEMA and the rates are pre-set in the legislation, although the newly approved legislation allows for annual rate increases from ten to twenty percent. The overall goal in rate setting for NFIP is to establish “actuarial rates” and eliminate the subsidizing of structures other than a primary residence. That would include second homes, vacation homes, etc. Bunch explains that an “actuarial rate” is an estimate of the expected cost of future loss, which is predicted on the basis of historical loss experience and the consideration of the risk involved. FEMA has never failed to pay a covered loss to date since debts were first incurred beginning with Hurricane Katrina in 2005 – the nation’s costliest disaster to date with estimated property damage at $81 billion dollars.
Bunch said that the government makes clear delineations between Disaster Coverage and Flood Insurance. A few of the differences that TWFG agents explain to customers are:
- Disaster assistance requires a presidential declaration, while flood insurance pays claims regardless of a presidential declaration.
- Almost 25 percent of all claims paid by NFIP are outside of Special Flood Hazard areas in low to moderate risk areas.
- Typical forms of Disaster Assistance are loans that must be repaid with interest. Flood insurance does not have any payback requirements.
- Flood insurance policies are continuous, and are not cancelled or non-renewed for repeat losses.
- The average Individual and Household Program award for Presidential disaster declarations related to flooding in 2008 was less than $4,000. Flood insurance reimburses for all covered building losses up to $250,000 and $500,000 for businesses. Additional contents coverage is available up to $100,000 for homeowners and $500,000 for businesses.
- Repayment on a $50,000 Small Business Administration Disaster home loan is $240 a month or $2,880 annually at four percent interest. The entire cost of a NFIP policy is little more than $500 annually. A preferred risk policy will add under $200 cost annually, depending on where you live.
Finally, Gordy Bunch says he alerts his TWFG customers to post a calendar reminder if a home or business owner is seriously considering adding flood insurance to their portfolios of protection. Bunch says: “There is a 30-day waiting period for new flood policies, so look at the long-range weather forecasts and patterns for your area. Don’t get caught without an NFIP ‘umbrella’ flood insurance policy!”
WHAT IS A FLOOD?
Flood insurance covers direct physical loss caused by a “flood.” In simple terms, a flood is an excess of water on land that is normally dry. The official definition used by the National Flood Insurance Program is: “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from:
- Overflow of inland or tidal waters;
- Unusual and rapid accumulation or runoff of surface waters from any source;
- Mudflow – “A river of liquid and flowing mud on the surfaces of normally dry land areas; as when earth is carried by a current of water.”
- Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.
WHAT IS INSURED UNDER BUILDING PROPERTY COVERAGE?
- The insured building and its foundation.
- The electrical and plumbing systems.
- Central air conditioning equipment, furnaces, and water heaters.
- Refrigerators, cooking stoves, and built-in appliances, such as dishwashers.
- Permanently installed carpeting over an unfinished floor.
- Permanently installed paneling, wallboard, bookcases, and cabinets.
- Window blinds.
- Detached garages (up to 10 percent of Building Property coverage). Detached buildings (other than garages) require a separate Building Property policy.
- Debris Removal.
WHAT IS INSURED UNDER PERSONAL PROPERTY COVERAGE?
- Personal belongings such as clothing, furniture, and electronic equipment.
- Portable and window air conditioners.
- Portable microwave ovens and portable dishwashers.
- Carpets not included in building coverage.
- Clothes washers and dryers.
- Food freezers and the food in them.
- Certain valuable items such as original artwork and furs (up to $2,500).
WHAT IS NOT INSURED BY EITHER BUILDING PROPERTY OR PERSONAL PROPERTY COVERAGE?
- Damage caused by moisture; mildew, or mold that could have been avoided by property owner.
- Currency, precious metals, and valuable papers such as stock certificates.
- Property and belongings outside of a building, such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools.
- Living expenses such as temporary housing.
- Financial losses caused by business interruption or loss of use of insured property.
- Most self-propelled vehicles such as cars, including their parts.
For further information:
713-416-0789 Cl / 281-466-1123 Wk< Back to Press Releases Page