Tuesday, September 6, 2005


I wasn't planning on posting again today. But Larissa just updated her blog. Even though she didn't live in a flood zone, her insurance policy excludes flood (all homeowners policies exclude it, by the way) and her insurance company is denying payment because the damage was caused by a storm surge.

This totally sucks. HOWEVER... I used to work in insurance, and this isn't a "loophole," as some of the sympathetic comments on her blog suggest. (Believe me, I feel sympathetic too!) It's an exclusion, written into every homeowners policy out there. I used to work in insurance (ten years ago, so I confess my knowledge is seriously out of date). Homeowners insurance policies routinely exclude flood. And yes, that includes flooding caused by wind and storms. A.M. Best's site says, "A flood is defined as a temporary condition of partial or complete inundation of normally dry land areas from overflow of inland or tidal waters, the unusual and rapid accumulation or run off of surface water from any source, or mudslides caused by flooding...Flood insurance covers damage to a building, including the foundation, posts, pilings, piers, or other support systems for elevated buildings. It covers any direct physical losses caused by a flood or from flood-related erosion. This erosion may be caused by a flash flood, an abnormal tidal surge, or excessive waters resulting from a severe storm." (emphasis mine)

If insurers covered flood as part of a homeowners policy, everyone's premiums (the money you pay for your policy) would be much, much higher. Your premium is based on the amount of risk you represent to the insurance company. They take the risks your policy covers, spread them over a large group and figure out the likely amount of losses, and charge you accordingly. If they were suddenly forced to start covering something that was excluded by the policy, they'd go bankrupt in a big hurry, because they haven't been charging enough to cover this type of losses. We need insurance-- our society depends on it. We ordinary people can't get mortgages or loans without it. So forcing insurers out of business by forcing them to pay losses they don't cover probably isn't the answer. What the answer is, I have no idea.

Flood, as I said above, is a very expensive thing to cover. Who underwrites flood insurance? The federal government, that's who. If you have national flood insurance, you are NOT paying enough in premiums to cover the risk-- in other words, the premiums are artificially low. This is because the federal government subsidizes flood insurance with everyone's tax dollars. But as far as I know, you CAN'T buy flood insurance unless you live in a flood zone. This means that Larissa, and thousands upon thousands more like her, are simply screwed. There is absolutely no way they could have bought appropriate insurance, even if they'd wanted to. And i
f it's literally impossible for someone to get flood insurance, but their house is flooded, what the h*ll are they supposed to do? And who will cover the loss?

On the up side, all these people who've found themselves without insurance will almost certainly be covered by the federal government when the area is declared a federal disaster area. At least, I certainly hope they will be, because I can't imagine what it would mean for those people, and the economy, if they aren't. In the meantime, this is all a horrible mess for people like Larissa to cope with, and adds to all the incredible stress they must be going through.

And yes, it totally sucks.

1 comment:

  1. Ellen, I do mortgages for a living and it drives me nuts when someone buys a house in a flood zone. Even worse is trying to explain why the required insurance may or may not cover losses!