Most Homeowners Still Lack Flood Insurance Despite Rising Risks

Despite the increasing severity and frequency of flooding across the United States, only a small fraction of homeowners have flood insurance to cover any potential damage. Many may believe their regular homeowners policy has them covered, when it fact it rarely does.

Why You May Need Flood Insurance

Flooding from rushing water and rain is generally not covered by regular homeowners insurance policies, though they may provide coverage for water damage caused by wind-driven rain, hail, or snow or from a burst pipe. That's even though floods are the most common and most destructive natural disaster in the U.S. by far, according to the National Association of Insurance Commissioners (NAIC).

From 1988 through 2017, flood damage in the U.S. cost almost $200 billion, according to the Natural Academy of Sciences, and the increase in precipitation due partly to climate change was responsible for $73 billion, or more than a third, of that. These figures include all property damage, not just homes.

Nonetheless, only about one home in six in the U.S. is insured against floods, according to the reinsurance company Swiss Re. That aligns with a 2018 survey by the Insurance Information Institute (III), which found that about 15% of homeowners buy flood insurance, according to Loretta Worters, spokeswoman for the organization.

Are You at Risk of Flooding?

Homeowers in high-risk flood areas with government-backed mortgages are required to have flood insurance. Some private lenders may also require it regardless of where you live. For most homeowners, however, it is entirely optional, leaving it to them to assess the risk and whether it is worth insuring against.

The Federal Emergency Management Agency (FEMA) publishes flood maps for some areas to indicate their relative risk of flooding. However, critics charge that the maps are outdated. Indeed, more than 20% of claims made to the National Flood Insurance Program (NFIP) originate outside areas considered to be at high risk, according to the insurance commissioners group.

Today, even if you live in an area with only low-to-moderate flooding risk, it's worth considering flood insurance, the NAIC says. Floods can happen almost anywhere with enough rain and backed-up sewers. You don't necessarily need to live near a body of water, as September's Hurricane Ida dramatically demonstrated.

Just one inch of floodwater can result in $25,000 worth of damage, the NFIP warns. According to the III’s Worters, the average flood claim is about $56,000.

How to Obtain Flood Insurance

Flood insurance policies are primarily available through the National Flood Insurance Program, which is managed by FEMA. The agency suggests consumers contact their current homeowners insurance agent, who can then arrange for the insurance.

There are also some fledgling private flood insurers, but the market is dominated by the federal government's program.

If you don't have an insurance agent, the NFIP suggests going to FloodSmart.gov/flood-insurance-provider or calling the NFIP at 877-336-2627.  

Prospective buyers should be aware that there's a 30-day waiting period to buy flood insurance, unless they are in the process of buying a home.