Post-Flood Insurance Ills Loom

Terry H. Schwadron

Aug. 30, 2017

Even as the President and company dropped into Texas for a supportive (and virtually empathy-free) photo op, things worsened for Houston. New areas of Houston were inundated by flooding from the two reservoirs serving the area, flooding areas that had been dry up until now, including some buildings used as emergency shelters.

The pictures are at once hauntingly horrid and, when you realize how many people are helping each other, crossing racial and class lines, kind of gloriously gratifying.

We also got the first word on what can’t be seen in the photographs — the grotesque clank of reality with the first word about home and business insurance.

Preliminary estimates are pointing north of $30 billion in damages to homeowners, but according to The New York Times reporting, only a total of about 40 percent of that may be covered by insurance. USA Today put the first estimates at 80 percent of affected homeowners who will not be covered. Plus, Texas law apparently changes by Friday making it more difficult to get money from insurers; a bill by the governor was aimed at protecting insurance companies from frivolous lawsuits that may have wider implications for Harvey survivors.

General homeowners’ policies cover wind damage and, in certain cases, water damage from storm surges. But for 50 years, all other homeowners’ flood coverage has been underwritten by the National Flood Insurance Program, a federal program that itself faces financial uncertainty.

Usually buying flood insurance is rare. According to The Times, homeowners in areas designated as 100-year flood zones are required to hold policies from the federal program. But in practice, the requirement is difficult to enforce and most people — including in eastern Texas — fail to buy coverage or let their policies lapse by not keeping up on the premiums.

The conclusion is pretty obvious. It will become a federal tax problem to pay for razing homes flooded out and replacing them with new temporary housing. The effects on businesses will be significant as well.

The Times turned to Enki Holdings, a data analytics firm for natural disasters, for the preliminary estimate. Core Logic, another such company, says 50 percent of businesses lack insurance. By my logic, whatever the preliminary estimate is going to be hugely low because new areas of Houston and the Texas coastline are still being flooded. It is impossible right now to know how many homes, apartment buildings, and businesses, to say nothing of cars and trucks, roadways and infrastructure, will be affected.

USA Today quoted Robert Hunter, director of insurance at the Consumer Federation of America as saying, “All these people taken out in boats, they have a second problem: They have no insurance” because of flooding. By contrast, those suffering damage in Corpus Christi suffered wind damage from the hurricane, and their homeowners’ policies would qualify. Fannie Mae reported that 36,000 homes with mortgages they back were affected.

FEMA, the federal Emergency Management Agency, has the maps that show 100-year floodplains, and bases flood insurance rates on those. The maps provide good data on where storm surges may hit, or rivers may overflow their banks, but not where a single storm like Harvey overwhelm the existing systems. Homeowners not in these 100-year floodplain maps would not be asked to buy insurance.

Fox News reported that more than half of flooded homes and businesses are outside those floodplain maps.

Harris County, which includes Houston, started using new floodplain maps from FEMA in January. The maps added about 8,000 parcels to the agency’s Special Flood Hazard Areas, meaning those properties have a better than a one-in-four chance of flooding at some point during a 30-year mortgage. Local authorities in Houston worked with FEMA to get the word out about the need for flood insurance, but it was a hard sell. And now that there is a flood, it is too late to buy it.

People without coverage will have to apply for FEMA grants or low-cost loans from other branches of the federal government. During Hurricane Sandy, homeowners found tremendous trouble actually getting loans in anything resembling a timely manner.

FEMA officials in Texas were asking people to file early for money to pay for temporary lodging, just to be registered.

The National Flood Insurance Program was created in 1968, after most private insurance companies stopped writing homeowners’ flood coverage because they could not charge premiums high enough to cover the potentially catastrophic costs. coverage has caps: $250,000 for a house and $100,000 for its contents, and $500,000 apiece for a business building and its contents. Larger companies can still buy flood coverage through commercial insurers.

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