Flood Dangers -- in a Condo?

High-rise condominium dwellers usually enjoy spectacular views and worry-free living — except for the threats of hurricanes, strong winds, and flooding.

Flooding?

Yes, even penthouse residents can be impacted by flood surges. While top-floorresidents may not suffer any damage to their personal units, surges can cause structural damage to the building's foundation, prohibiting access to floors at all levels. Condominium residents in the Pensacola, Gulf Breeze, Biloxi and other surrounding areas were confronted with this sad situation during the last hurricane season when they were virtually locked out of their units. This Spring, the rising waters in the Midwest and Central Plains made the nightly news for weeks.

Garnering much less news coverage is an insurance product that offers significant protection to these victims — if they have it. Flood coverage is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers. Congress created the NFIP in 1968, but despite its availability for over four decades only 17 percent of Americans have a flood insurance policy, according to a recent poll by the Insurance Information Institute (I.I.I.).

The fiscal dangers of being unprotected are significant. The I.I.I. study found that in 2007:

The average amount of flood coverage was $201,598.

The average premium was $505.

The average flood claim was $24,579.

Flood loss payments totaled $523 million.

Data from the U.S. Department of Homeland Security shows that 2005 — the year of Hurricanes Katrina, Rita, and Wilma — was a catastrophic claims year, with loss payments totaling $17.6 billion, the highest amount on record. Hurricane Katrina alone caused the highest flood damage losses in history, impacting six states (Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee.)

The NFIP had 166,210 paid claims from Katrina, totaling almost $16 billion, with an average paid loss of $96,016.

Coverage Options

To protect against flood, agents have several coverage options they can discuss with their clients, depending upon client circumstances and determined level of risk. Homes and businesses with mortgages from federally regulated or insured lenders in high-risk flood areas are required to have flood insurance, which is available as a standard rated policy. It offers separate building and contents coverage.

For people who rent or own a condominium unit, agents might recommend purchasing both building (if the policyholder owns the unit) and contents coverage. For tenants, contents-only coverage is available. The Residential Condominium Building Association Policy (RCBAP) of the standard flood insurance policy insures residential condominium associations, and thus the building in which the unit is located.

Condominium owners or renters in moderate-to-low risk areas are eligible for preferred risk policies, whose premiums are the lowest available through the NFIP. Residential premiums can start as low as $39 per year for contents-only coverage. Consumers who do not qualify for a preferred risk policy can obtain a standard rated policy. While flood insurance is not federally required for people in moderate-to-low risk areas, nearly 25 percent of all NFIP flood claims occur in these areas.

Flood insurance can only be purchased through an insurance agent; consumers cannot buy it directly from the federal government. Also, flood insurance rates are set; they do not differ from company to company or agent to agent. So clients should not feel the need to “shop around.” Premium cost depends on several factors, including the date and type of construction of the home, number of units in the building, number of floors, and of course, location location location.

There is a choice of the amount of deductibles, which apply separately to building and contents (the mortgage lender may set a maximum amount for the deductible; check to see if that applies). Payment must be made for the full year's premium, unless the agent or company provides that independently. Coverage is not effective until full payment is received. However, the NFIP accepts check and credit card payments.

There is typically a 30-day waiting period before a new flood policy goes into effect, although there are some exceptions:

If the lender requires flood insurance in connection with making, increasing, extending, or renewing the loan.

If an additional amount of insurance is required as a result of a map revision.

If flood insurance is required as a result of a lender determining that a loan that does not have flood insurance coverage should be protected by flood insurance.

If an additional amount of insurance is being obtained in connection with the renewal of a policy.

As with any other type of insurance, it is important to thoroughly explain to the insured what the policy does and does not cover. For example, damage caused by a sewer backup is only covered by flood insurance if it is a direct result of flooding. The damage is not covered if the backup is caused by some other problem. “But I thought that was covered,” is one of the cries most often heard in insurance matters, and even more so with policies affecting homes.

The bottom line? Flood insurance is affordable, increasingly necessary, and readily available. In many instances contents coverage is available for less than $250 with a low $500 deductible. Now is the time for agents to help their clients protect their most important financial investments.

Phil Gambrell is a founder and co-owner of Gambrell & Sturges Insurance in Bonifay. He may be reached at 850-232-8102 or PGambrell@gambrellsturges.com; www.gambrellsturges.com.