A complete assessment of the property damage wrought by Hurricane Harvey will take weeks, if not months, to deliver. But as the first disaster victims return to their homes, some are being forced to confront an unfortunate reality: Gaps in their homeowners’ insurance that will leave them on the hook for thousands of dollars’ worth of damages.
According to analytics firm CoreLogic, hundreds of thousands of affected residents in Texas and Louisiana aren’t insured for flooding damage. The firm estimated that residential flooding has caused $25 billion to $37 billion in damage spread across 70 counties in Texas and Louisiana hit by Harvey. Of that, about 70%—or $18 billion to $27 billion—is uninsured.
Scientists have confirmed that Harvey caused a "1-in-1,000-year flood" and that the total cost of property damage and lost productivity could be as high as $190 billion.
One homeowner who spoke with the Wall Street Journal said the first thing she did when she returned to her home was check the details of her insurance policy.
“Among them is Andrea Womack, a 38-year-old mother of four.
The carpet and some clothing in her one-story house in Houston’s Settegast neighborhood were damaged by water. On Friday morning, Ms. Womack was waiting for an insurance company representative to come by and go through what was covered.
‘I signed up for insurance a while back, but on my papers it says it does not cover flood insurance. So I’m not sure’ what will be covered, she said.”
The Federal government’s flood-insurance program has written 250,000 policies for Houston residents, compared with 1.7 million housing units that may’ve experienced flood damage, according to WSJ.
“Overall, households and businesses in Harris County, which includes Houston, held roughly 249,000 federal flood insurance policies as of June 30, according to the Federal Emergency Management Agency. There are about 1.7 million housing units in the county.”
The reason is simple: Even in flood-prone areas, many homeowners don’t read the fine print of their insurance policies until disaster strikes.
“Many homeowners never examine details of the policies they buy, and it is only after a flood they learn the basics: Standard homeowners’ policies provide payouts for damage from wind, fire, fallen trees and other storm-related events—but not flooding. For that, people generally need to buy separate policies from the U.S. government, through its nearly 50-year-old National Flood Insurance Program.”
In an ironic twist, homeowners with mortgage debt might be better off than their peers who own their homes outright.
“Those homeowners who do have flood insurance are likely those whose mortgage lenders require it, said Etti Baranoff, an associate professor of insurance at Virginia Commonwealth University.
‘The mortgage company checks if your home is in a flood zone or not, and they’ll make you take’ a policy out if so, she said.”
But even those who bought flood insurance from the federal government may not receive enough to cover all their property damage, according to WSJ. These policies pay out a maximum $250,000 for rebuilding and $100,000 for personal possessions.
Some homeowners are putting the cleanup on hold until they’ve spoken to an insurance agent.
“'That’s kind of storm Houstonians judge everything by,’ said Mr. Truss, 36 years old. ‘It did not flood during Allison.’
Even so, the couple’s bank still required them to get a federal flood policy that they bought through their Allstate agent.
‘We’re hearing you have to have [all the damaged items] to get insurance’ claims paid, Mr. Truss said, surveying the piles of clothes, toys and books in his front yard. He said he was initially going to wait until he heard from insurance officials before clearing out the house, but “it would be a disaster if we kept waiting any longer.
He’s trying to photograph every item to show an insurance adjuster eventually.”
The National Flood Insurance Program is already bracing to pay out claims equal, or perhaps larger, than the amount disbursed after Superstorm Sandy.
“Standard homeowners’ policies do pay for some damage from water—such as if it enters the house after the wind rips off the roof or a tree crashes through the attic. But if water overflows a riverbank or gushes down a street to seep into a house, the homeowner can expect a claim to be rejected, according to industry lawyers.
The federal flood insurance program’s payouts for Harvey appear on track to rival those made for superstorm Sandy in 2012, the nation’s third costliest hurricane (behind Katrina in 2005 and Andrew in 1992.) So far, 130,622 Sandy claims have cost the program $8.4 billion, an average of $64,331 apiece, according to the Insurance Information Institute trade group.”
And in what’s likely to be a boon for auto makers, payouts for car-related damages could be “several times larger” than those for homes.
“Insurers’ payouts for cars damaged by Harvey’s flooding could be several times larger than those they make for homes. Investment bank Keefe, Bruyette & Woods puts insured personal and commercial auto costs at roughly $4.7 billion. But not all the estimated 500,000 vehicles flooded by Harvey are covered by insurance.
Overall private-market insurance payouts for Harvey are expected to be dominated by payments to business policyholders and range from $10 billion to $20 billion altogether. At the high end, they would likely top those for Sandy, which cost $19.8 billion in 2016 dollars, according to the Insurance Information Institute.”
However, KBW noted that 13% of Texas motorists don't own any car insurance whatsoever, according to Insurance Research Council. And of those who do, more than a fifth don't buy " comprehensive" coverage, which protects against flooding damage. Many vehicle owners go with just the bare-bones liability coverage that is required by law.
In areas where homes were damaged by both flooding and wind, homeowners should expect insurers to try and dispute some of their claims, according to WSJ, local courts should be sympathetic to homeowners.
“If there is a breath of wind and breath of storm surge, that ought to be enough to put in front of the Texas courts and ask for relief for these people,” said David Wood, a policyholder lawyer for corporate clients at Barnes & Thornburg LLP in Los Angeles."
While individual homeowners may end up settling for reimbursements that don’t cover the damage, at least, according to JPM, the economies of the 70 counties affected by the storm may find an “offset” in the construction boom expected to follow the storm. The investment bank says it could provide a slight boost to US GDP estimates in the third and fourth quarter.