In Storm-Tossed Houston Area, Most Homeowners Lack Flood Insurance

Gladys Abbott
September 3, 2017

Many homeowners let the policy lapse after a few years, correctly thinking the bank will not check.

Ellis and others say the best hope now is that lawmakers will pass a three- or six-month extension of the National Flood Insurance Program, effectively kicking the debate down the road. "A lot of them [Katrina victims] moved to Houston and they're probably going through this again", Hunter says.

The primary reason that the nation's insurance companies are off the hook for the damage is that most of the destruction came from flooding, which is not normally covered by a standard home insurance policy. This is different from the way a home insurance policy works.

Miami Republican Rep. Ileana Ros-Lehtinen, who represents low-lying areas of downtown Miami and Miami Beach, urged a flood insurance solution that doesn't disproportionately affect coastal residents.

Of course, none of these measures will solve the problems associated with more frequent, and costly, floods. Hunter expects flood damage alone from the storm to cost at least $35 billion, about what Katrina cost. Specifically, the United States is long overdue for smart reforms to one of the major government institutions created to help people cope with the risk of natural disaster: the National Flood Insurance Program (NFIP), which has underwritten a total of 5 million policies providing homeowners and some businesses $1.2 trillion in coverage.

But the program's size has already been declining for years, despite mounting flood risks. It is inconceivable that FEMA would ever be able to repay the Treasury for past disasters, according to the Government Accountability Office.

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Congress clearly can not eliminate the threat that natural disasters pose to the country. However, the so called EU Solidarity Fund is meant to help governments meet the cleaning-up costs and rebuilding. The low-lying nation of 17 million has a well-developed network of dikes, dunes and water barriers that have largely succeeded in containing the water. Only one Dutch insurer offers it. It accounts for flood insurance claims totaling over $428,000. "It is insane that a delta country like the Netherlands doesn't", the association's spokesman Rudi Buis said. Bill Cassidy of Baton Rouge has a 10-year extension plan with some changes, but isn't overly optimistic things will change much.

The country's Consumer and Markets Authority rejected the proposal back in 2013, however, arguing that consumers must have a choice of whether or not they insure against flooding. It provides assistance for homeowners hit hard by flooding from natural disasters.

"This administration's been pretty clear that we'd like to see some responsible reforms to the National Flood Insurance Program", he said Thursday at the White House. While flood-linked catastrophe bonds wouldn't be the entire solution, they could be an important tool for filling the funding gap, according to Gary Martucci, an S&P Global credit analyst. In fact, it only just started working with insurance companies to offset potential losses, purchasing reinsurance for storm losses above $4 billion earlier this year, according to Bloomberg Intelligence.

Hurricane Harvey hit the Texas Coast producing catastrophic damage across a wide swath from the Coastal Bend to Houston.

It used to be that support for flood insurance reform was more of a regional issue than a partisan issue, said Lehmann. "Neither the government nor private insurers will be prepared to absorb all of these losses all of the time in the future".

"We can't have this situation where 6 percent of the population is insured for floods", said John Dickson, president of NFS Edge, an affiliate of insurance provider, Aon National Flood Services.

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