Only 3% Of Homeowners In Parts Of Hurricane-Slammed North Carolina Have Flood Insurance

Hurricane Florence's lacerating rains have finally moved on from the Carolina's, but the flooding threat posed by multiple rivers - particularly in the hardest-hit state of North Carolina remains high, as this photo of Cape Fear River, tweeted earlier Tuesday by the Fayetteville Police Department, clearly shows:

The river is projected to rise nearly 45 feet to near 62.4 feet by Tuesday, according to the NHC - what would be a record-breaking level for the region. As of Monday, Swansboro North Carolina had received nearly 31 inches of rain, which was also a record. The intense flooding has invaded power plants and caused lagoons filled with hog waste to overflow - a phenomenon that will be difficult for state authorities to undo. Aside from the structural damage, the human toll from the storm was also severe, with 35 fatalities across the Carolinas and Virginia.


But as the waters recede, rattled residents will begin returning to their homes to see what, if anything, is left of their properties. And unfortunately for hundreds of thousands of them, they will be on the hook for tens of thousands of dollars in damages because, as USA Today reports, only a small fraction of them have a flood-insurance policy. In the coastal areas that were hardest hit by the storm, USA Today estimates that only between 10% and 20% of homes are insured. Further inland, where flooding is still devastating thousands of homes, rates are as low as 1%.

Only 10 percent to 20 percent of coastal homeowners in the hard-hit eastern part of North Carolina, for example, have coverage through the government’s National Flood Insurance Program (NFIP), and only 1 percent to 3 percent of homes in inland counties have flood policies, according to estimates from John Rollins, an actuary at consulting firm Milliman. Statewide, roughly 3 percent of the homes in North Carolina have flood coverage and 8 percent of homeowners are covered in South Carolina, Rollins said.

The reason rates of the insured are so low particularly in the areas further inland has something to do with misperceptions about the government's risk assessments.

The numbers of those covered are low, he said, because people think that because their home isn't in a high-risk zone designated by the government that there's "zero risk" of a flood. "But that's not true," Rollins says. Many also don't realize their basic homeowners policy doesn't cover flood damage, while others overestimate the disaster aid they will get from the government.

Flood insurance in most parts of the country is purchased through the federal government's National Flood Insurance Program. If a would-be homeowner wants to buy a home in an areas marked as a flood risk, they're required to purchase a policy. As with many government programs, critics argue that these misplaced incentives adversely encourage development in risky areas. In support of that, ProPublica produced a map of chronically flooded homes in Florence's path that have had numerous claims paid since the late 1970s.


But even those who own a policy through the NFIP could find themselves in trouble since the program - which keeps premiums unreasonably low to accommodate low-income individuals - is $20 billion in debt.

At the end of July, there were 134,306 active NFIP flood policies in place in North Carolina, Bowen said. That's only 3 percent of the estimated 4.62 million housing units in the state, he said, citing U.S. Census Bureau data.

Private insurers, in comparison, should have no problem paying out claims since they're sitting on a massive pile of cash.

Insurers should have no problem being able to pay out claims to policy holders because the industry has cash reserves of roughly half a trillion dollars, according to Matt Carletti, senior insurance analyst at JMP Securities. 

Estimates for damage caused by Florence range from $5 billion projected by CoreLogic to $20 billion projected by Goldman Sachs.

Unfortunately, standard homeowners insurance won’t cover any flooding-related issues. The estimated insured losses from Florence are in the range of $3 billion to $5 billion, according to CoreLogic. Goldman Sachs, a Wall Street bank, said they could go as high as $10 billion to $20 billion.

Those who don't have insurance have one recourse: seeking federal disaster funding. This is often an arduous process.

Homeowners not covered for flood damage can seek federal disaster assistance in the form of grants from the Federal Emergency Management Agency or apply for a loan from the Small Business Administration, said Steve Bowen, meteorologist for Aon Benfield's Impact Forecasting division. FEMA may provide up to $33,000 in assistance for home repair, although the average for Superstorm Sandy in 2012 was about $8,000 and roughly $7,100 for Hurricane Katrina in 2005.


"You are looking at a lot of homeowners that will have out-of-pocket costs that could easily be five figures, or more than $10,000," said Cathy Seifert, an insurance analyst at CFRA, a Wall Street research firm.

But even homeowners who have private policies could be forced to pay out of pocket for some repairs since insurance typically only covers one third of total economic losses.

The problem for homeowners is that insured losses generally are only about one-third of total economic losses, which puts them on the hook financially for a more sizable part of their home rebuilds if losses are due to uncovered flood costs, Carletti said.

To get flood coverage, homeowners must buy a separate policy. Most purchase this extra coverage from the government-backed NFIP program, which is designed to restore your home to its preflood condition and replace your possessions. NFIP policies, which carry average premiums of about $600 to $700 a year but can run into the thousands of dollars in high-risk zones, cover up to $250,000 for a home's structure and up to $100,000 for personal possessions.

Of course, while individual homeowners might suffer, they can at least take some small comfort in the knowledge that their struggles should help stimulate the local economy - at least on paper.