Hurricane Harvey, Flood Insurance Coverage and Proposed Flood Bills

By: Terry Davy, Capstone Brokerage Private Client Advisor, August 30, 2017

With the recent natural disaster, Hurricane Harvey, and the amount of heavy rainfall and flooding, many are left to wonder if they will be covered by flood insurance for the damage caused to their homes on the Gulf Coast. Majority of homeowner’s insurance policies, however, DO NOT cover damage caused by flooding. Flood insurance was a very difficult coverage to get before the National Flood Insurance Program, NFIP, was enacted in 1963. Specific communities can participate in the NFIP as a separate policy for your home.
Majority of Flood Insurance Coverage is written through the NFIP which is administered by The Federal Emergency Management Agency, known as FEMA. The problem with natural disasters, such as Hurricane Katrina and Sandy, is the federal program has gone into debt. While the government has been taking steps to stabilize the program by raising flood policy rates, the program still is not fixed.

The problem is most homeowners do not think they need flood insurance until it is too late. Some insurers see a market for private flood policies and legislation is pending in congress to encourage more insurers to sell private flood insurance policies. In June of this year 5 bills were introduced that correlate to flood insurance:

HR 2875, the “National Flood Insurance Program Administrative Reform Act of 2017”

This bill would make administrate reforms to the NFIP to increase fairness and protect tax payers from program fraud and abuse.

HR 1558, the “Repeatedly Flooded Communities Preparation Act”

The bill would amend the National Flood Insurance Act of 1968 to ensure community accountability for areas repetitively damaged by floods.

HR 1422, the “Flood Insurance Market Parity and Modernization Act”

The bill would clarify that flood insurance policies written by private carriers satisfy the mandatory purchase requirement.

HR 2246, the “Taxpayer Exposure Mitigation Act of 2017”

The bill would repeal the mandatory flood insurance coverage requirement for commercial and multifamily properties located in flood hazard areas and to provide for greater transfer of risk under the National Flood Insurance Program to private capital and reinsurance markets.

HR 2565, a bill to require the use of replacement cost value in determining the premium rates for flood insurance coverage under the National Flood Insurance Act, and for other purposes.

The Bill would require the use of replacement cost value in determining the premium rates for flood insurance coverage under the National Flood Insurance Act.

Unfortunately, these bills have not yet made it to senate, during something like Harvey it may have been beneficial to have had some of these enacted.

There is a common misconception that homes not located in a coastal region, near a river or a flood plain do not need flood insurance. However, more than half of flood insurance claims will occur in areas with low flood exposure. Homeowners can choose to have a supplemental policy or add an endorsement to their homeowner’s policy that would provide coverage for the following types of damage:

• Structural elements, including walls, floors, equipment and fixtures
• Contents such as furniture, appliances, carpeting, and wall and floor coverings
• Personal items such as clothing, audio equipment and televisions

Private flood insurance options are increasingly available in some states, but consumers should make sure they understand the fine print before choosing one over a federal policy.

The NFIP policies cover structures up to $250,000 and contents up to $100,000. They do not cover extra living costs, like hotels and restaurants, for displaced homeowners. Private options may offer higher limits and include coverage for housing if you must relocate temporarily. For many along the Gulf Coast, and especially in Houston, they are left to wonder what they will be going home to, and if there will be any type of coverage for their loss. Sadly, those who are displaced may be in shelters for a much longer time than anticipated. It is during the time of national disaster, that FEMA is under a watchful eye, hopefully the result of Harvey will fair better for the citizens of Houston than those who were affected by Sandy and Katrina.