The surprising truth about flood insurance 

Among the many heart-wrenching stories emerging from the back-to-back hurricanes are the ones about people who had sunk their savings into their homes only to see them washed away or damaged beyond repair. A surprising truth about flood insurance is that only about 4% of homeowners in the US have it. You might think that a standard homeowner’s insurance policy would cover flooding, but that is not the case – as many residents in the path of Helene or Milton have learned. Homeowner’s insurance will cover water damage from a broken pipe, hot water heater or leaky roof – but not from a hurricane or other natural disaster.  

The other surprising truth about flood insurance is that most of us need it: 99% of U.S. counties were affected by a flooding disaster from 1996 to 2019. So, if you think you and your workers won’t ever be impacted by flooding, unfortunately that is likely not the case. 

Flood insurance 101

Flood insurance is a separate policy that protects against “an excess of water on land that is normally dry.” The federal government’s National Flood Insurance Program underwrites 95% of flood insurance policies. The maximum coverage for essential elements of a building, such as the foundation, electrical and plumbing systems, appliances and carpeting, is $250,000, for both single-family homes and units in condominiums. The maximum coverage for contents – personal belongings such as clothing, furniture, personal electronics, and air conditioners – is $100,000 for all residential buildings, including rental properties. You can buy the two types of coverage – building and contents - individually or together. Depending on where you live, private flood insurance might be available with higher coverage levels.  

The cost of coverage is an issue for many people

The cost of flood insurance is based on risk of flooding in your area, so the more likely it is to flood, the more everyone needs insurance and the higher the cost. Depending on the state, the average cost of flood insurance ranges from $400 to $1,600 a year, with states on the East Coast currently paying the most. (You can check out the average cost of flood insurance for a single-family home in 2023 by state, according to a Policygenius analysis of  FEMA pricing data.)  How much you ultimately pay depends on: 

• Your coverage amount and type of coverage 
• The age and type of construction of your home 
• Your home’s location and flood zone 

The need for NFIP reform 

The program, created in 1968 to respond to a lack of private flood insurance, has been in debt since 2005 when Hurricane Katrina devastated the US Gulf Coast. The NFIP currently has a debt of over $20 billion. 

What’s needed is to raise awareness of the importance of having flood insurance and to encourage more people to get in the program, which will help bring premium cost down. 

In addition, “legislative changes are required to help reduce the cost of flood insurance for American homeowners and renters,” as our colleague Daniel Kaniewski, former #2 at FEMA and now a Managing Director at Marsh McLennan, said in a recent Bloomberg interview. “While FEMA, which administers the program, has laid out proposals to amend it, no action has been taken yet,” he said. The recent hurricanes have again brought the issue of flood insurance to the fore for policymakers. Reducing the risk of flooding is the most important step that can be taken to improve the affordability of flood insurance, so it’s critical that communities and homeowners take steps to address their flood risks. That will require greater investment to update flood maps and support community outreach.  

In the meantime…

Employers can do several things to help workers be more resilient when faced with a flood. Communicate with workers on what they can do to prepare, such as having an emergency kit with water, medical supplies, non-perishable food and a battery-operated radio, and raise awareness of www.Ready.gov, a good resource for disaster and emergency tools and resources.  

Finally, encourage workers to obtain flood insurance to help cover costly repairs caused by flooding. Currently flood insurance is not a voluntary benefit option, like home and auto insurance, but it is on our wish list. The ability to purchase flood insurance through a payroll deduction could be a more manageable way to pay for flood insurance. And – NFIP take note – that could be a way to get more people into the program, make rates more affordable, and make coverage more sustainable.