Considering getting flood insurance after Milton and Helene? Here’s what to expect

Up until a few weeks ago, residents of western North Carolina likely gave little consideration to purchasing flood insurance.

But last month Hurricane Helene flooded much of that area, as well as other parts of the Southeast, resulting in up to $30 billion in uninsured flood damage.

Their experience underscores the growing possibility that even property not on a coast can still get flooded and take severe damage.

“If it rains at your home, it can flood at your home. There is no area of the country immune to flood hazards,” Mark Friedlander, a spokesperson for the Insurance Information Institute, an industry trade group, told CNN. Still, “lack of flood insurance is the largest insurance coverage gap we see across the United States,” he said.

Here’s what you’re likely to encounter if you’re shopping around for flood insurance policies.

Homeowners with mortgages are almost always required to have home insurance by their lenders. However, those policies alone typically don’t protect against damage from flooding. That’s also true for renters insurance.

But homes located in federally designated high-risk flood plains, and in some cases homes outside them, could be required to have flood insurance.

Most flood insurance is offered through the federally backed National Flood Insurance Program, a part of the Federal Emergency Management Agency. These policies have to be purchased directly through private insurers and are only available for residents in a flood-prone community that participates in the program.

Residents in communities that have taken efforts to reduce their risk of flooding and participate in NFIP’s rating program could receive discounts on flood insurance premiums.

Under FEMA policies, coverage for single-family homes is capped at $250,000 for a building’s damage and $100,000 for its contents. Flood insurance for renters only covers the contents of their home, up to $100,000. For businesses, the maximum coverage is $500,000 for structural damage as well as contents stored.

There’s a waiting period for flood insurance. NFIP policies only go into effect 30 days after a policy is purchased. In other words, you can’t beat the system by buying flood insurance right before a storm.

The process of settling insurance claims can be lengthy, and policyholders often receive much less compensation than what they may have expected from their insurer after a flood hits. It’s not uncommon for policyholders to have to turn to litigation to try to get more compensation.

Insurance may be less expensive in areas where flooding has generally been less likely, That’s not to say these regions are flood-proof, though. The NFIP estimates that more than 40% of NFIP flood insurance claims come from outside high-risk flood zones.

The III estimates the average cost of an NFIP policy is $1,000 a year. Residents of low-risk areas can buy a policy for between $480 and $600 a year, according to the trade group.

“There are also dozens of private flood insurers offering coverage at very competitive rates and typically more robust coverage than an NFIP policy,” said Friedlander.

Andy Neal, a senior managing director at Aon who leads efforts to develop climate and natural catastrophe analytics, said the company is seeing an uptick in Americans getting flood insurance that way.

“However, the increasing frequency and severity of severe weather, and climate risk in particular, means consumers need to prepare for higher premiums in the long term — and following events, like (hurricanes) Helene and Milton that result in large losses, in the near term,” said Neal, who was previously the chief actuary of the NFIP.

In areas that recently experienced major flooding, insurers are likely to respond by either raising rates due to a higher perceived risk or pulling out entirely, according to Scott Hawkins, head of insurance research at asset manager Conning.

One factor that will play a crucial role in informing flood insurers’ decisions is how much they pay to insure the policies they’re responsible for, known as “reinsurance,” he told CNN.

“If the reinsurers are willing to take on the risk that the primary carrier writes, or at least a chunk of that at an affordable rate, that could go a long way towards mitigating either a company pulling out of a market or raising rates,” Hawkins said.