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Banking & Finance

The Ebbs, Flows Of Flood Insurance

By Jenny Callison, posted Oct 4, 2024
On Sept. 16, an unnamed storm logged as Potential Tropical Cyclone Eight flooded homes and businesses in Carolina Beach. (Photo by Jacob Reinwand)
There’s plenty to wade through following the significant flooding caused by Potential Tropical Cyclone Eight as the storm churned through New Hanover, Brunswick and Columbus counties Sept. 16. People whose property was damaged by the floods are still sifting through the after-effects and facing some sobering costs. For property owners without flood insurance, those costs will wallop the wallet.

Flooding is the most common and costly natural disaster in the United States, according to the Federal Emergency Management Agency (FEMA).

The N.C. Department of Insurance states that flooding is the second most common natural disaster in North Carolina, occurring on average every seven-and-a-half days. Add to that the FEMA statistic that even just one inch of invading water can cause $25,000 of damage to a home. Yet, despite these facts, only a tiny fraction of the state’s property owners carry flood insurance.

A major misconception about flood insurance is that property owners need it only if their home or business lies in a FEMA-labeled flood zone. N.C. Commissioner of Insurance Mike Causey likes to say, “If you live where it rains, you need flood insurance.”

A second misconception is that flood damage will be covered by North Carolina wind and hail insurance. Not so: Flood insurance is a separate policy, said Chrystie Frazier, an account executive for personal lines at Wilmington-based Wells Insurance.

“Wind and hail insurance and flood insurance often have to work together,” she said. “If the water (comes from the sky) through the roof or windows, it’s covered by wind and hail insurance. If any water rises from the ground up, that’s going to be a flood claim. Look for a water line inside the (building) to confirm that.”

Since the unnamed storm hit last month, Frazier and her associates at Wells Insurance have fielded many calls from people in Carolina Beach and Kure Beach – from policyholders and non-policyholders alike. Many people in Kure Beach don’t carry flood insurance because they are on slightly higher ground and didn’t expect to be inundated.

“Some people without insurance asked if FEMA would come in and offer any kind of relief,” Frazier said. “We told them that’s not certain yet, but in any case, the home has to be your primary home for that to happen.”

She also alerted callers that, if they want to purchase a policy, to plan ahead, because there’s a 30-day waiting period before a policy takes effect.

When talking to Wells homeowner policyholders, especially new clients coming from other parts of the country or state, Frazier urges them to purchase a flood policy, even if the property is not in a so-called hazardous zone.

“Even if your lender doesn’t require flood insurance for their purposes, that doesn’t mean you shouldn’t have it, and (a flood) is not going to happen,” she tells clients. “About 30% or more of recently flooded properties were in lower-risk areas. I recommend getting flood insurance at least until you are familiar with the landscape and how things work here. At a minimum, get a quote on flood insurance.”

Longer-term residents of the Cape Fear region can be harder to convince, Frazier added.

“They’ll say, ‘I made it through Florence,’ but some people who made it through Florence got flooded Monday (Sept. 16),” she said, adding that dodging a bullet from one storm doesn’t insulate you from another one. “The hardest part is when people say, ‘I’m not in a flood zone.’ We’re all in a flood zone: It’s just a matter of more risky or less risky.”

Advice from the N.C. Department of Insurance is similar. Department spokesman Jason Tyson quoted the DOI’s statement.

“If you live in a flood plain, near a river or if you live near the coast, you should consider purchasing flood insurance for your home,” he said. “Your lender may require flood insurance if your home is located in a flood plain. (But) just because your home is not in a designated flood plain, do not assume you will never incur flood damage.”

Impacts from Hurricane Helene in late September brought flooded areas to western North Carolina not as used to tropical storm- and hurricane-related water impacts.

Parts of the state east of Interstate 95, and especially urban areas, are prone to flooding, Tyson added, noting the region’s larger cities – Wilmington, Southport, New Bern, Fayetteville and Whiteville – are at risk. But damaging flooding can also occur in rural, low-lying counties such as Brunswick and Columbus. The rapid pace of development, replacing open land with impermeable surfaces, makes floods all the more likely – and expensive, he said.

A homeowner flood policy covers up to $250,000 for the building and $100,000 for the contents. For businesses, the limit is $500,000 for the building and $500,000 for the contents. Policies are available through agencies, who purchase it from carriers. Those carriers are backed by the National Flood Insurance Program, the “banker” for flood insurance. So, whether the policy is purchased through an individual agency or a single-source provider like State Farm or Nationwide, it’s ultimately an NFIP policy, Frazier explained.

Compared with the damage even a minor flood can do, insurance is a modest investment, said Tyson.

“As of September 2023, the average annual cost of an NFIP policy in North Carolina was $874 per year,” he said. “In North Carolina, 634 communities participate in the NFIP, while 27 do not.”

North Topsail Beach is one of those communities, according to Frazier. The NFIP won’t insure structures there because of the community’s high-risk setting. For people who live there and in similar situations – much of Florida, for example – the only option is the private market through insurance brokers. Those policies, absent the government backing, are more expensive.

FEMA is creating new flood hazard maps to better reflect an area’s level of risk. The new ratings, said Frazier, are based on a building’s proximity to water as well as the area’s flood history. Property owners in the Cape Fear area are seeing their rates change as a result.

Frazier, who lives near but not directly on water, is now paying double what she did when the old maps and rating system were in force. Her estimate is the average North Carolina policy runs about $900 per year, but many factors affect the rate.

“It’s dependent on how close you are to a water source, how your home is built and when it was built, and how many stories it has,” she said. “On my street, the homes closest to the river are in the most hazardous zone. My home is close to water but in the less hazardous X Zone, but three houses down is a hazardous zone.”
 
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