Hurricane Ian Exposes Flood Insurance Nightmare in Florida

Hurricane Ian's storm surge flooded homes on Florida's west coast, leaving mold, muck, mud, and a flood insurance nightmare for residents who want to rebuild.

Source: NBC | Published on October 12, 2022

Flood insurance

Many Floridians who experienced extensive flooding did not have a separate flood insurance policy to cover the storm's damage. It has left homeowners — and even renters — with a hefty and potentially life-changing bill that could determine whether they are forced to relocate.

Susan Cavanaugh and her two children are going through that ordeal after the storm surge engulfed the first floor of their home on Sanibel Island, where all three live and work. Cavanaugh's flood insurance coverage expired earlier this year while he was going through a costly divorce.

She is now unsure how she will get her family back into their home without an insurance check to cover contractors and building materials.

"As a single mom, I can only do so much," Cavanaugh, who is staying in a motel and is unsure where she will live next, said. "All we want to do is go home." It's structurally sound, but we need to get it back online, and it's not just a cosmetic problem. It will take blood, sweat, and tears, as well as a lot of muscle and hard work, to get there."

Last month, Sanibel Island took a direct hit from the Category 4 storm and the surge of water from the gulf that it brought into people's homes, reaching up to 15 feet in some places. The community is still inaccessible by car, forcing many residents to pay boat captains to ferry them to the cleanup site.

Cavanaugh is not alone in dealing with flood damage without the protection of insurance. Many residents of the small coastal community, which faces the Gulf of Mexico southwest of Fort Myers, lacked flood insurance.

Furthermore, Sanibel Island is a microcosm of a larger insurance challenge confronting Florida and the nation.

According to an analysis conducted by the risk management consulting firm Milliman, only about 18.5% of homes in Florida counties that faced a mandatory or voluntary evacuation order the evening before Hurricane Ian landed had a flood insurance policy with the National Flood Insurance Program, the federal government program administered by FEMA. Even in flood-prone areas within those counties, fewer than half of the homes had a flood insurance policy on file.

Despite the increased occurrence of devastating flood events, it appears that a decreasing percentage of people in the United States have flood insurance policies. According to data obtained from the federal agency, the number of policies maintained by the National Flood Insurance Program has decreased by nearly 700,000 since 2008.

"Many factors influence this drop in policyholders, including the economic impact of the pandemic, the housing market, affordability, or purchasing flood insurance from the private market," said David Maurstad, the National Flood Insurance Program's senior executive.

FEMA, he said, "continues to market the flood insurance product throughout the country" in order to "increase the number of properties covered by flood insurance." The National Flood Insurance Program, which was established in the 1960s as the private insurance market declined to cover flood events, currently has approximately 5 million policies.

It is a costly endeavor for the federal government. According to FEMA data, the program has paid out $40.1 billion to slightly more than 910,000 claims since 2008, and the agency still owes the US Treasury about $20 billion after borrowing funds to pay out many of those claims.

With climate change causing more dangerous storms and increasing the risk of flooding, the United States and its coastal communities are starting to experience the drawbacks of building in flood-prone areas.

"The risk is there because weather losses are on the rise," said Lynne McChristian, director of the University of Illinois' Office of Risk Management & Insurance Research, "and those exposures are growing because we're building more expensive things in the most vulnerable areas."

This has become a growing challenge for FEMA, which frequently provides assistance to flood-prone communities. It had hoped that more people in these areas, particularly those in flood-prone areas, would sign up for insurance. FEMA guidelines have gone so far as to refuse aid to those who have previously received federal funds for flooding if they have not obtained flood insurance coverage in the interim.

"I think anybody who lives near water should definitely purchase flood insurance because it's your No. 1 tool to help protect your family and your home after the storm," FEMA Administrator Deanne Criswell said last week on CNN.

One major issue is that many homeowners believe their standard homeowner's insurance policy covers floods. Florida law requires insurers to notify their customers about coverage gaps, but many Floridians were surprised to learn that their policy did not cover flooding.

One Florida requirement is that each policy issuance and renewal include four sentences in at least 18-point bold font warning that a separate flood policy is required. "Your homeowner's insurance policy does not include coverage for damage caused by a flood, even if the flood was caused by hurricane winds and rain," the warning text states.

"I think people are less likely to read them now because everything is electronic," McChristian said of the policies and warnings. "Regulators in several states have tried, but it hasn't moved the needle."

Many people avoid buying flood insurance because it is too expensive. According to Forbes Advisor, the average cost of flood insurance through the National Flood Insurance Program is $995 per year. This figure varies depending on the home's location and floodwater risk, and it is an additional cost on top of other homeowner policies. As a result, it may become unaffordable or, at the very least, a burden.

Although mortgage companies frequently require coverage when purchasing a home in a flood-prone area, some allow their coverage to lapse as costs have risen. Others who own their homes outright are no longer required to keep that coverage.

After 15 years of holding a policy, Leslie Weyhrich and her husband decided to reduce insurance coverage for their second home on Sanibel Island in May. Each year, the price skyrocketed, and they knew they'd be hit with yet another massive bill for a necessary roof repair. They will now have to pay for much of the damage themselves.

"It went up significantly about five or six years ago," Weyhrich said. "But every year when that bill came due, we debated whether it was worthwhile because the deductibles were so high, it didn't cover as much as it used to, and it just made less fiscal sense."

But decisions like these could have far-reaching consequences for many people on the island and in communities across Florida, and they are unlikely to be resolved in the near future, potentially leading to litigation.

"Half the people I've talked to on this island are uninsured for flooding, which is absolutely terrifying," said Chuck Bergstrom, a Sanibel Island realtor who stayed in his home during the storm. "And whether you have insurance or not, these insurance companies aren't here right now to help these people." They'll bargain as hard as they can."

Those with flood insurance are also bracing for their own insurance nightmare as they argue with their carriers over whether the damage to a home was caused by floodwaters or the hurricane's wind.

Because of the disparity in policies, companies on both sides are likely to engage in a protracted legal battle.

"Lawyers will have a field day with this," Bergstrom added. "I mean, who exactly pays for what?"