Earlier this month, historic flooding left thousands of Milwaukee area residents with property damage.
In the aftermath, many homeowners found out the hard way whether their policies would cover the damages, or if they were left with thousands of dollars in repair costs. One listener submitted a question to WUWM asking how home insurance providers have been able to get out of covering flood damage.
To answer that question and more about how to navigate flood insurance, Lake Effect’s Audrey Nowakowski was joined by Philip Mulder, assistant professor of Risk & Insurance at the UW-Madison School of Business.
This interview has been edited for length and clarity.
We had a listener question that I'd like to start with. They're wondering how homeowners insurance providers have been able to get out of covering flood damage. Why isn't flood insurance typically a part of most home insurance policies?
To understand why your homeowners insurance policy is not generally covering losses from flooding you have to go all the way back to about 1927, when a series of devastating floods along the Mississippi River caused a number of insurers to become insolvent. They weren't able to pay their claims, and this led to a period of time when it was very hard to find an insurer who was willing to write homeowners coverage.
It's important for folks to understand that this language is in your policy. When a flood happens, it's quite simply the case that you are not going to be able to get coverage from your standard homeowners insurance policy. A lot of people are not fully aware of that going in, especially in a place like Wisconsin where flooding is not top-of-mind. But unfortunately, most private insurers still view flooding as a risk they don't want to get involved in. And even if you are finding private insurance, you're going to have to do that as a separate flood insurance policy.
Unfortunately, most private insurers still view flooding as a risk they don't want to get involved in.
So, you mentioned private insurance or a second policy. Can you go over what some options are if you want flood insurance that's not covered by your current existing homeowners’ insurance?
The main source you're going to be turning to is what's called the National Flood Insurance Program (NFIP). They set up the NFIP starting in the 1960s, after all these private insurers went out of business and no one had flood coverage. That is organized under FEMA now and they will write you a flood insurance policy.
You can buy coverage from the NFIP, regardless of whether you’re in a floodplain. Your lender may require you to buy the insurance if you're in a floodplain, but even if your lender is not making you buy the coverage, you could go out there and buy it. The NFIP sets a limit, they'll only write insurance up to $250,000 of your home’s replacement costs and up to $100,000 for contents. Especially after all the inflation during COVID, these limits probably seem low relative to what most people's homes would really cost to replace. But for flooding that may require extensive repairs but hasn't completely washed away your home, that should be sufficient.
There's also a private market now, and they can write higher coverage limits. The pricing there is going to look a little bit different than how the NFIP does it, but both private insurers and the NFIP are going to be basing their premium on an estimate of your home’s flood risk. You may be surprised at how expensive coverage is, but it is a reflection that flooding is one of the costliest disasters in the United States.
Do you know the average cost of flood insurance here in Wisconsin?
Let me start by saying that you can actually find a calculator online. The NFIP offers a tool where you can enter your address, a little bit more information and, in about five to ten minutes, get an estimate for how much your home’s coverage would cost through the NFIP for a standard policy and deductible.
In addition, you can find a lot of brokers or speak with your own insurance agent or broker who can connect you to some of these private flood insurers. But in general, if you live in a very low risk area, which does describe a lot of Wisconsin, flooding can happen anywhere, but we’re not Florida — you're probably looking at costs of $400 to $600 for a one-year policy, depending on the deductible and exactly how much coverage you want. If you live in a riskier area, maybe in an older home that's very low to the ground, maybe near a large river that overflows, coverage might run you $1,000 or more for a one-year policy.
Is it difficult to get private flood insurance in the first place? Are there requirements to meet, or is it just a matter of ability to pay?
Private flood insurance is going to be harder to access, so that's definitely a case where those insurers are being very picky about which risks they take on. This is a market that's slowly growing in the private space. For decades, there was no private flood insurance, basically. And now, I think it's around 10% of all flood insurance policies are being written through private providers. And it's a valuable market because sometimes people can find coverage there that they can't get through the NFIP. Sometimes people even find better rates there than you can now get from the NFIP.
But at the end of the day, the back stop, the program that is truly willing to write almost anywhere, is the National Flood Insurance program. It's probably worth checking out with private providers first, but if you don't have luck there, you can turn to the NFIP.
As you mentioned, Wisconsin's not Florida. But flooding is starting to be a little more common, and many households here in the Milwaukee area are either uninsured or underinsured against flooding. What factors are contributing to this?
As this whole conversation we've had illustrates, I think, it's complicated for homeowners to navigate. You know that you're getting a homeowners insurance policy, but maybe you didn't ask what it does or does not cover. Maybe that wasn't entirely clear. Maybe you forgot over time. I think a lot of people did not know that they're in this situation. Even when people do know, it's a real expense.
Homeowners insurance is not one of our main expenses of homeownership here in Wisconsin. So, to be told that you might be doubling the amount that you have to spend on your home, your property insurance just to add in flood coverage, that can be a hard thing for a lot of homeowners to reach within their budgets. Interest rates have gone up. Property taxes in many places have gone up. Some homeowners just don't have room in their budget to add one more expense onto their monthly mortgage payment, or for folks living on a fixed income.
Another listener question submitted to us asked whether they should wait for insurance companies to respond prior to removing flooring, drywall — the things that get damaged — or remove them right away to avoid mildew and so on? What do you recommend?
It's ultimately really going to depend on the wording of your contract, who your insurer is and the nature of the damage. One step is, you should probably reach out to your agent, but of course they're getting a lot of calls right now.
A general principle is that you should take reasonable steps to prevent additional damage to your home. Insofar as it's hazardous to your health or the structure of your building, of course you should take the steps to mitigate that. Another step is to document everything you know. Take pictures of what it looks like before you start doing any work yourself. Document any costs that you incur as part of doing this work, because that's all going to add up into any claim you might be able to get.
Can you get FEMA assistance if you have flood insurance as well? Can both resources be combined?
They can to some degree. It's going to depend on the specific program. We often think that there's this unlimited supply of disaster aid that just flows into areas with declarations. That's not the case. Even if the disaster declaration for Wisconsin gets approved, that aid will be pretty limited, but it is there. FEMA can authorize some short-term payments, precisely to help with folks who need to make some of those smaller expenses, temporary living, things like that.
Another program that you may find yourself turning to even if you have flood insurance, are disaster loans, which are often issued through the Small Business Administration. Even though it’s called the Small Business Administration, they do have loan programs for homeowners, which covers uninsured losses.
So, this can be a case where you have a homeowners’ policy, but it doesn't cover flood. You have flood insurance, but maybe the limit was too low and you have some damages that exceed that limit. The SBA will make you a loan, structured very similarly to a mortgage, and it will be at a favorable interest rate depending on your income and credit score. Again, you'll have to make payments, you'll have to pay it back, but it can give you the money you need in the short run. This is all of course dependent on whether a disaster declaration comes through.*
On August 27, Wis. Gov. Tony Evers formally requested a presidential disaster declaration from President Trump due to the damage caused by recent extreme weather and flooding. The request comes as Wisconsin Emergency Management and FEMA joint preliminary damage assessment determines more than $33 million in damages across six Wisconsin counties.
This recent flood really has a lot of homeowners wondering if flood insurance is something we should be getting, whether we're in the traditional floodplain or not. So, there's the question of: do we forego the cost of flood insurance, and then perhaps take on the cost of, say, installing drain tiles or a sump pump? What are your insights into weighing decisions like this?
I think it's complicated. There are some people who will say that everyone should have flood insurance and I'm not quite as comfortable sort of making that recommendation to every single person. Budgets are tight and not everyone can necessarily spend the money.
First, there are an increasing number of sources where you can get some sense of your home’s flood risk. Flood maps are useful up to a point. Those are official estimates of flood risk produced by the federal government, and they will tell you whether you're in a floodplain. “Floodplain” means you have, according to their estimates, at least a 1% chance of flooding each year. But just because you're outside the floodplain doesn't mean you have no flood risk. During catastrophic rain events, you could still experience flooding. On top of all this, we know we have a changing climate, and these maps can be out of date and not reflect new developments, so you can't take them as a sure sign of whether you have risks.
There are also newer models. If you go on Zillow and you look at your home, you might see a flood risk score from one to 10 there. You can get a short assessment of your property’s flood risk there. I mentioned that you can go to the premium calculator that the NFIP makes available. And if you see that you have higher premium, that's because they estimate that your home has higher flood risk.
If you see that your home does have some substantial flood risk or want to be prepared just in case, flood insurance is absolutely an option. But it doesn't cover, for example, a lot of damage to your basement. In that case, you'll often be on your own especially for contents. So if that's really your main source of risk, things like sump pumps, things like keeping up on the on the drainage of your home and having that inspected or cleaned if necessary. Things as simple as packing belongings that you store in the basement into plastic containers and having shelves that elevate them off the ground. Elevating your HVAC and furnace. These are all things that are probably a little bit cheaper in the long run than having flood insurance every single year.
Is there anything else you think our listeners should know?
I just think that it's really important to go into this with as much information as you can about what your insurance does and does not cover. Try to find a good agent or broker you can work with to really understand these things. Do some research about what these standard policies do and do not cover. Check your coverage limits, even on your own standard homeowners insurance policy. A lot of people find out that they're underinsured when they do suffer a total loss, even if it's not from flooding. I think information is going to be your friend, and it's going to be what can hopefully empower homeowners to make the right decision to cover their risk.
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