The issue has taken on added urgency this year because the federal government’s National Flood Insurance Program (NFIP) is authorized to sell new residential and commercial policies only until Thursday, September 30. And, if recent history is any guide, there is no guarantee Congress will renew the NFIP beyond that date even though hurricane season continues through November 30.
“In the past year, the National Flood Insurance Program’s ability to sell new policies, and renew existing ones, has been interrupted numerous times because Congress has not reauthorized the NFIP in a timely manner,” said Michael Barry, vice president, Media Relations at the I.I.I. “The program was allowed to lapse for weeks starting on June 1 of this year, the official start of the hurricane season, and the NFIP could very well meet the same fate again this fall.”
Coverage for flood damage resulting from surface water, including storm surge caused by hurricanes, is excluded under standard homeowners and renters insurance policies. Five years after Hurricane Katrina caused $16.1 billion in flood-related damages to NFIP-insured properties, the single largest loss in the 42-year history of the program, only one in 10 Americans has a flood insurance policy. Confusion over whether a homeowner’s insurance policy covers damage from flooding appears to be a contributing factor to the fact that only 10 percent of all property owners have this type of coverage, according to the I.I.I.’s recently released white paper, Hurricane Katrina: The Five Year Anniversary.
Louisiana, where Katrina made landfall, is home to five of the 11 most hurricane-prone counties in the U.S. The others are situated in Florida and North Carolina.
Flood insurance covers direct physical losses by flood and losses resulting from flood-related erosion caused by heavy or prolonged rain, coastal storm surge, snow melt, blocked storm drainage systems, levee dam failure or other similar causes. To be considered a flood, waters must cover at least two acres or affect two properties.
Homes are covered for up to $250,000 on a replacement cost basis and the contents for up to $100,000 on an actual cash value basis. Replacement cost coverage pays to rebuild the structure as it was before the damage. Actual cash value is replacement cost minus the depreciation in value that occurs over time. Coverage for the contents of basements is limited. Coverage limits for commercial property are $500,000 for the structure and another $500,000 for its contents.
Excess flood insurance is available from some private insurers for NFIP policyholders who want additional coverage or whose communities do not participate in the program.
The NFIP notes that there is a 30-day waiting period after applying for coverage and paying the premium before the policy is effective. The only exceptions are:
If a homeowner purchases flood insurance in connection with making, increasing, extending or renewing a loan. In those cases, there is no waiting period.
If a lender determines that a loan on a property that does not have flood insurance should be protected by flood insurance, there is no waiting period as long as the premium is presented at the completion of a loan application.
If a homeowner purchases flood insurance during the 13-month waiting period following the effective date of a revised community flood map issued by FEMA, the agency with oversight over NFIP. There is a one-day waiting period for policyholders meeting that criterion.