Midwest flooding illuminates gaps in coverage

Severe flooding in Missouri and other parts of the Midwest could prove costly for the National Flood Insurance Program, though a coverage gap remains

Insurance News


The National Flood Insurance Program could face payouts on more than 7,000 structures damaged in the flooding that has plagued Missouri and other parts of the Midwest. However, given the coverage gap that particularly plagues flood insurance, it isn’t likely.

Governor Jay Nixon estimated that there could be more than 7,100 structures in his state alone that were affected, and as much as 500,000 tons of debris in the St. Louis area that needs cleared.

Insured property owners will need to pay a $50,000 deductible, but flood coverage should pay for costs of materials attached to the building. Those with a current policy are expressing gratitude.

“We’ve been complaining about how much our flood insurance costs us in the last couple of years, but it’s a good thing we have it,” said Allison Dailey, manager of the McHugh & Dailey Mercantile Building in Pacific, Missouri.

Yet not everyone who had their homes damaged is anticipating a payout. Flood is among the most uninsured natural disasters, according to data from Swiss Re. Roughly 86% of Americans do not carry a flood insurance policy, leaving just 14% who would be covered if disaster struck.

And that’s a number that just continues to sink. According to the NFIP, the number of government-sponsored flood policies in force has plunged by nearly 10% in the past six years, from 570 million in 2009 to just 5.15 million in 2015.

It’s already a large drop, but Insurance Information Institute President Robert Hartwig anticipates it will continue to grow.

“It’s sad to say, but that gap is going to increase,” Hartwig said during a recent webinar on uninsured risk with Swiss Re. “People are reacting to price increases that have been put in place because [NFIP] is broke.”

Those price increases are the result of the Biggert-Waters Act and subsequent legislation, which were designed to move toward more actuarially sound rates and ease some of the $24 billion debt into which the program was plunged following Hurricane Katrina in 2005. Premium rates jumped 15% to 18% for new and renewal policies on primary homes, and 25% on secondary homes or homes that have suffered repeated losses.

Also contributing to consumer reticence toward insurance is a lack of significant flood damage, says Hartwig.

“Memories are short,” he said. “It’s been nearly 10 years since the last major hurricane in Florida – the longest span in history. And it does not take long for a gap between events for people to start questioning why they need this coverage.”

Perhaps some Midwesterners, like Dailey, will begin to think differently as flood waters recede.

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