Insuring against climate catastrophe in Florida

by Kerrie Kennedy

It probably won’t surprise Florida real estate agents to learn that they work in one of the five states with the greatest proportion of properties currently at risk for flood damage. Or to know that federal flood maps underestimate the true vulnerability of flooding that high-risk areas across the country face.

But they might be surprised to learn just how many homes are in jeopardy.

A new study conducted by the New-York based nonprofit First Street Foundation offers its own flood maps, showing that almost six million properties in the U.S. are at serious risk of flooding, something the Federal Emergency Management Agency’s maps have failed to reveal.

According to the analysis, not only are millions of American homeowners at greater risk of flooding than government data suggests, many also lack the resources necessary to rebuild their homes in the event of severe flood damage. Mortgage lenders typically require buyers of homes in a 100-year flood zone to purchase flood insurance, but they’re relying upon inaccurate information to make those decisions.

In the state of Florida, more than 1.8 million properties currently have a substantial risk of flooding, the study found. This includes more than 100,000 additional properties currently not identified by FEMA as having substantial risk. Over the next 30 years, the number of properties with this risk will increase by another 18.6%, bringing the total number of properties with substantial risk to nearly 2.2 million.

“Private insurance companies use technology to better predict flood zones and model certain risks,” Louis Gazitua, principal at JAG Insurance Group, told Miami Agent. “Being in South Florida, everybody should be in a flood zone.”

While flood insurance isn’t mandated by the state of Florida, it’s a common requirement of mortgage lenders. According to Gazitua, lenders currently require only $250,000 in flood insurance through the national flood program for a single-family home worth $1 million. “That’s the maximum you can buy,” he said. So, what about the other $750,000? “It’s a huge gap that needs to be addressed.”

According to the study, 20.5% of Florida properties are at substantial risk of flooding today, and 24.3% will be at substantial risk by 2050. The city of Cape Coral has the greatest number of properties currently at risk of flooding in the state with 111,200, or 86% of its total number of properties.

Nearly five million home and property owners in Florida have made flood damage claims through FEMA since the year 2000. The claims were related to eight flooding events that have occurred in the state of Florida since the year 2000, including Hurricanes Charley, Jeanne, Katrina, Wilma, Matthew, Hermine, Irma and Michael. These events flooded around 364,420 properties across the state, and presumably many of them were underinsured.

The big event

Despite the destruction caused by these weather events, none of them have been enough to foster change when it comes to flood insurance.

“That one big event that’s going to push change with regards to insurance requirements hasn’t happened yet, so insurance is still lagging,” Gazitua said. “When that happens, they’ll [lenders] start to ask for full limits for flood insurance. It will have to be a big direct hit. But for now, everything falls under what we call lender requirements.”

So how can Florida homeowners protect their assets in the event of a major storm? It all boils down to money. While some homeowners have flood insurance that’s been grandfathered in — keeping the cost low — insuring one’s property to cover flood damage at 100% is possible but expensive.

One way to keep payments lower is to facilitate passing policies along to new owners. According to Gazitua, a seller who’s paying $400 for flood insurance can transfer that policy to a new buyer, for whom the cost might otherwise be $4,000.

But that might not even be enough, assuming the worst happens. If a storm and subsequent flooding destroys a home that’s insured 100%, but the entire town is impacted, what happens to the value of the property? Or what happens if your client’s property is in a condo building that’s been devastated? What’s the value of the property if you can’t resell the unit?

“It’s a gray area,” said Gazitua. “No one’s figured out how to insure for loss of value after a catastrophic event. If you live in a fourth-floor condo but the bottom floors are flooded significantly, the insurance policy doesn’t cover your inability to access the unit. Condos scare me more when it comes to climate change, because you’re not really in control.”

For now, Gazitua recommends agents help their buyers do the proper research. “Don’t trust the flood maps,” he said. “Talk to the neighbors to get a better feel for what’s happening. And talk to insurers. A lot of private insurance companies have developed technology that allows them to look at a home and model it for potential hurricane damage. I can get that information and worse-case scenarios pretty quickly.”

According to the First Street study, more than 34.8% of properties in Florida are at risk of flooding over the next 30 years. Out of those at risk, 65% are at major to extreme risk.

“The storms are getting more frequent and more severe,” Gazitua said. “If there was ever a time to buy insurance and do it correctly, it’s now. “Don’t cut corners — the bank only cares about what you owe them.”

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