Harvey’s aftermath hard lesson for homeowners without flood insurance
AUSTIN, Tex. – Texans returning to homes laminated with gooey mud and full of stinky debris will soon discover another dreaded reality: the vast majority of them lack flood insurance to cover damages and destruction.
Only about 8 percent of households within the affected region covered by the federal disaster declaration carried such insurance, according to an analysis by the Pew Charitable Trusts.
That means homeowners must pay for much of the cleanup and rebuilding costs out of their pockets or take out loans from either the government or commercial lenders. Standard home policies cover losses from fire, theft and wind. Flood protection requires an extra, more expensive clause.
Texas Gov. Greg Abbott said he expects Harvey’s costs to exceed the more than $120 billion the federal government spent on Hurricane Katrina.
“This is going to be a multiyear project for Texas to be able to dig out of this catastrophe,” Abbott said on ABC’s “Good Morning” program Friday, adding that it was “far larger in scope” than Katrina 12 years ago.
Pledges from President Donald Trump to quickly restore Texas may ultimately provide little solace for residents in hard-hit southeast Texas who forewent flood insurance, only to have their home inundated with water from the wettest deluge the continental U.S. has ever seen.
A misconception about federal disaster aid may be partly to blame for the low insurance rates, says Robert Hunter, director of insurance with the Consumer Federation of America, a consumer advocacy group. Hunter is also a former Texas insurance commissioner.
Most people think they won’t need flood insurance or can’t afford it and that in the unlikely event of a catastrophic storm, they will have federal relief to fix their home, Hunter said. What they don’t realize, he said, is the rebuilding money comes in the form of a low-interest federal loans.
“If you don’t have insurance, you’re going to have to take out this low-interest loan and that means that you’ll have a loan to repay on top of your mortgage that you still have to repay,” said Hunter, who managed the federal insurance program in the 1970s.
That’s why many people who lived New Orleans’ Ninth Ward after Katrina decided to walk away from homes that held little equity but required massive repairs. Hunter said he expects the same to happen after Harvey, particularly among low-income home owners.
“They’re just going to say, ‘Forget it,’” Hunter said. “The sad thing is a lot of those people from New Orleans ended up (staying) in Houston, so they’re going through it again.”
Hunter said the total out-of-pocket costs will likely exceed $28 billion, which is what people spent after Katrina. He said he would not be surprised to see the total reach $40 billion because of the low number of people with flood insurance and the lax building regulations in high-risk areas along Texas’ coast.
There’s also, of course, just the sheer force of the storm. Harvey made landfall late Friday as a Category 4 hurricane and then stuck around for days as a tropical storm. It dumped nearly 52 inches, causing the National Weather Service to introduce new colors to map the rainfall.
The destruction has been widespread. The number of homes affected by Harvey has reached nearly 90,000, according to the latest figures compiled by the state, and is likely to continue to grow.
Tom Bassett, the White House official overseeing the federal government’s response to the disaster, estimated 100,000 homes were damaged or destroyed by the monster storm in Texas and Louisiana.
Far fewer people are supplementing their homeowners’ policy with flood insurance, a recent Associated Press investigation found.
The National Flood Insurance Program, administered by FEMA, offers subsidized flood policies in coastal and flood-prone regions, but many homeowners in Houston and Southeast Texas were not required by mortgage lenders to join the program.
The number flood policies nationally dropped 10 percent in the past five years, the AP found. In Houston, it dipped 11 percent during that time while Jefferson County, home to Beaumont, saw an even more precipitous drop: 23 percent.
The reasons why people shun flood insurance vary, but can include the cost of premiums and a sense of complacency that develops after many years of not needing the protection.
Congress will have to reauthorize the troubled federal flood insurance program for it to continue past next month. Congress is planning to address the issue in light of Harvey’s widespread destruction.
Observers say this is opportunity to address shortcomings in the program, even if that means extending the program as is for now to give lawmakers more time to develop a plan and focus the more immediate need of restoring Texas communities.
Fixes might include requiring strategies to reduce the risk of flooding in vulnerable areas, such as limiting the building or rebuilding allowed in known flood zones, says Laura Lightbody, project director with Pew’s flood-prepared communities program.
“Community leaders, city planner and elected officials have ask themselves a question: Does it make sense to continue rebuilding in areas we know are prone to flood again?” said Lightbody write in an email.
Another hard lesson that Lightbody said will likely come from Harvey is a renewed appreciation of flood insurance, which she said offers the “first line of defense.”
But the federal program that offers this protection was first designed in the 1960s, when the understanding of both the risk and potential scope of flood events was much different, she said.
As a result, the program owes the treasury $25 billion and serves as a “perverse incentive for people to continue to live in flood risk areas,” she added. The subsidies offered to about 20 percent of policyholders, she added, send “a false signal to people living in risky areas.”
And those risks may be growing, Hunter said.
“We’re building in these high-risk zones, and if climate change is happening, these high-risk zones then get to be higher risk zones,” he said.
But Hunter said changes must also be made to boost the number of policyholders in the program.
“We have to find a way to get more people insured,” he said.
Jill Nolin is a state reporter out of Atlanta for CNHI’s newspapers and websites. Reach her at jnolin@cnhi.com.