With a high rate of unemployment due to Covid-19, people across the United States are looking for ways to save money. In some cases, this cost saving takes the form of reducing one’s personal insurance coverage. In the 2009 recession, the Insurance Research Council reported that 15% of home and auto policyholders took steps to reduce their coverage or increased their deductible amounts. Although this provides immediate savings, it could expose policyholders to enormous future liability and is, therefore, a highly risky means of saving money in the short term. While mortgage companies require homeowner policies to be maintained for any mortgaged property, homeowners who own their properties outright have the option of whether to maintain their insurance policies or to fluctuate the amount of coverage applicable to the property.
In an attempt to help constituents struggling with unemployment, 19 states placed a moratorium on insurance policy cancellations due to nonpayment during the pandemic. However, some states prone to intense hurricanes, such as Florida, South Carolina, and Alabama, did not require that protection over homeowners. Other states that initially offered protection, such as Mississippi and Louisiana, are nearing the end of their grace periods. This means that insurers will be able to cancel policies for nonpayment right before the start of peak hurricane season, a time when the risk of flood related claims skyrockets.
The National Oceanic and Atmospheric Administration predicted that the 2020 Atlantic Hurricane Season will be above average compared to historic seasons. The Atlantic Hurricane Season started on June 1, with the peak season starting in late August. With policies often taking 30 days before coverage takes effect, insurers are recommending that homeowners and renters in high flood prone areas purchase flood insurance now to take effect before the peak hurricane season begins. Most standard homeowner policies do not provide coverage for flood damage. In fact, a paltry 15% of homeowners in the United States have flood insurance when flooding is involved in 90% of all natural disasters. The average cost for flood insurance is $700 per year. However, there is large variability depending on the state where the insured property is located, with those living in the highest flood risk states having higher premiums.
While preparing for climate events, such as flooding, seems like a remote risk, the increasing severity and frequency of storms and associated flooding events should make people think twice before skimping on their coverage. Hurricane Harvey flooded over 200,000 homes in 2017, causing almost $16 billion in property damage just in Houston, Texas. Only one-quarter of those properties were insured with flood coverage. Severe climate events are becoming more frequent with rising sea levels and sea temperatures. Typically, the average flood loss per property is around $45,000. The average loss for flooding per property from Hurricane Harvey was almost $117,000. It is important for property owners and developers to be mindful of these factors when building and maintaining properties. For current commercial and residential property owners, maintaining adequate coverage is a good start for protecting their property from possible risk.
CMBG3 Law’s Environmental practice group helps to navigate our clients through litigation, compliance, and regulatory matters, including issues related to climate change and climate risk management. For more information about our Environmental practice, please visit us or contact Alexandra Fraher for more information.