Private Insurers Expect Minimal Flood Losses; Few Bought NFIP Coverage

As surging flood waters inundated the Midwest–causing damage that for the most part is not covered by private insurers–the Insurance Information Institute announced a study showing that only 17 percent of Americans have a federal flood insurance policy.

Indeed, Property Claim Services–which catalogs insured losses from catastrophes–expects covered damage from the flooding “will be small in number, since most of the affected properties are not insured for this peril,” noted Gary Kerney, assistant vice president of PCS.

Despite that fact, the Property Casualty Insurers Association of America announced last week that insurers have implemented a 60-day moratorium on cancellation and nonrenewal of p-c insurance policies for people living in flood-affected Midwest counties.

PCI said the moratorium was instituted in cooperation with the Illinois, Indiana and Iowa insurance departments. “We understand that residents are trying to get their lives back in order, and this is one of the many things the insurance industry is doing to help,” said Greg LaCost, PCI assistant vice president and regional manager.

A report from reinsurance broker Guy Carpenter's Instrat unit, citing data from the Federal Emergency Management Agency, said more than 11 million people in nine Midwestern states have been affected by the recent flooding and extreme weather. At least 16 people have been killed, and the flooding has forced at least 38,000 people to evacuate their homes. Crop damage has also been considerable, with Iowa alone reporting $1 billion in damage.

In Indiana as many as 800 buildings were said to have been destroyed in Johnson County, around 1,700 homes damaged in Morgan County, 600 homes were damaged in Owen County, and 1,100 homes were damaged in Vermillion County.

The preliminary estimate of damage to the public infrastructure in four impacted Minnesota counties was put at $8.3 million.

Meanwhile, the Insurance Information Institute said the proportion of Americans with a policy from the National Flood Insurance Program is relatively unchanged from a year ago, when 14 percent said they had federal flood coverage.

However, there has been some improvement in the take-up rate for flood coverage. According to the Institute, in the North Central states–where much of the most recent catastrophic flooding is occurring–17 percent said they have flood insurance, up from 9 percent in 2007.

“The results show that although more people are buying flood insurance, the percentage is still dangerously low,” said Jeanne Salvatore, senior vice president and consumer spokesperson for the Institute, in a statement.

The Institute's survey also found that:

o In the Northeast, the percentage of homeowners with flood insurance doubled–from 10 percent in 2007 to 20 percent in 2008.

o In the Western region, 15 percent said they have flood insurance in 2008, up from 13 percent last year.

o Slightly fewer homeowners in the South now say they have flood insurance–17 percent, compared with 20 percent in 2007.

These findings are consistent with NFIP data showing an increase in the number of people nonrenewing flood policies in Gulf Coast states, despite the flood damage caused by Hurricane Katrina in 2005, according to the Institute.

Annual premium for a homeowners NFIP policy starts at $112 per year, according to the Federal Emergency Management Agency–increasing according to the level of flood risk and amount of coverage needed. (The maximum coverage amount is $250,000 for the structure of a home, and $100,000 for its contents.)

The Institute said Opinion Research Corp. interviewed 1,004 people for the survey from May 15-18, 2008.

PCS, a unit of the Jersey City, N.J.-based Insurance Services Office Inc., said by e-mail that for the most part, flood damage to structures is not covered except through the NFIP. But ISO is aware of some commercial structures that are protected to some degree by flood coverage provided by private insurance companies.

Examples of these types of properties include universities and hospitals–but that is not to say all such occupancies have insurance coverage, PCS explained. Vehicles insured with comprehensive coverage will be protected for flood damage, according to PCS.

As this story went to press, PCS had not assigned a catastrophe serial number related to the general flooding that is being reported in areas of Iowa, Missouri and Illinois.