Helene is dumping rain on the millions of U.S. homes that don’t have flood insurance

On Thursday evening, Helene made landfall on the Florida coast as a Category 4 hurricane. The massive storm with winds of 140 miles per hour made landfall near where Hurricane Debby hit in August and where Idalia hit with a little over a year ago. It quickly made its way inland, knocking out power for millions. And even before that, it started dumping rain — now 12 to 15 inches across a swath of Georgia and South Carolina, and more than a staggering 29 inches in Busick, North Carolina.

The disaster underscores Americans’ perilously low levels of flood insurance, especially away from coastal areas.

Massive flooding is being reported in the South and Appalachia, with photos and videos showing cities from Florida to North Carolina under water.

“This will be one of the most significant weather events to occur in the western parts of our area,” said a weather service in western North Carolina. As of Friday afternoon, the French Broad River through Asheville had reached about a foot of its all-time high.

In Atlanta, Peachtree Creek rose more than 20 feet Wednesday through Friday, according to the National Weather Service. In the US, 36 river gauges had reached major flood stage, while another 147 recorded water overflowing their banks. All are in Helena’s way under her torrential rains.

Chuck Watson, a disaster modeler at Enki Research, said his latest estimate is that Helene will cause between $25 billion and $30 billion in physical damage and losses. Most of these will not be covered by insurance. “The ratio of insured to uninsured has gone down” among U.S. homeowners, he said, “and a lot of that is because flood coverage is not covered by the private sector.”

About 4 percent of Americans have flood insurance, according to the Federal Emergency Management Agency (FEMA), with most of these policies issued under the government’s National Flood Insurance Program. The rate in no way matches the risk posed by more frequent extreme precipitation events.

This shortfall, which has been documented for years, is caused by two main factors: Many people do not know that regular home insurance usually does not cover flooding, or that they live in a flood-prone area where this additional purchase would protect

Homeowners who live in FEMA-designated flood zones are required to purchase flood insurance if they have a mortgage. However, FEMA has mapped only one-third of America’s floodplains, according to the State Wolf Managers Association.

Furthermore, most FEMA maps do not account for flash flooding or rain-induced flooding. This is probably one of the reasons why coastal flood insurance is negligible. In many counties in the Southeast and Appalachia, coverage under the federal program is 2.5 percent or less, according to an analysis of federal data by reinsurer Guy Carpenter.

Then there are cost issues: Some Americans who previously had flood insurance are now dropping it because of rising insurance prices.

Christopher Graham, a senior industry analyst at AM Best, a credit rating agency that focuses on insurance, described the problem of low underwriting as “a combination of people not believing the risk applies and not wanting to pay the price.”

Homeowners insurance rates in the seven states in Helene’s path — namely Florida, Georgia, South Carolina, North Carolina, Kentucky, Tennessee and Virginia — rose an average of more than 27 percent from 2018 to 2023, according to S&P Global Intelligence. Price increases have also been steep for flood insurance. FEMA, which manages the National Flood Insurance Program, released Risk Assessment 2.0 in 2021, an update to how it sets rates designed to make the program actuarially sound.

In the first year after the update, 75 percent of covered primary residences saw an 18 percent increase, the legal limit, Benjamin Keys, a real estate professor at the University of Pennsylvania’s Wharton School, testified before Congress in 2023. Half of all policyholders will see their premiums more than double after five years, Keys predicted in his testimony. Higher costs have led some to drop their policies.

But this is a big gamble. Floods are the most damaging of all hazards. It has cost American taxpayers more than $850 billion since 2000 and is responsible for two-thirds of the costs of all natural disasters, says Flood Defenders, a nonprofit flood insurance advocacy organization. FEMA estimates that a single inch of flood water in a home can cause $25,000 in damage.

Uninsured and underinsured homeowners typically think they’ll be able to rely on help from the federal government, but FEMA offers very limited help to people without federal flood insurance, and even that safety net is crumbling. FEMA is facing a financial crisis as disasters mount, and Congress failed to renew federal funds used for storm relief in a government funding bill that passed this week.

Copyright 2024 Bloomberg.

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