NEW YORK — Homeowners suffering flood damage from Harvey are more likely to be on the hook for losses than victims of prior storms – a potentially crushing blow to personal finances and neighborhoods along the Gulf Coast.
Insurance experts say only a small fraction of homeowners in Harvey’s path of destruction have flood insurance. That means families with flooded basements, soaked furniture and water-damaged walls will have to dig deep into their pockets or take on more debt to fix up their homes. Some may be forced to sell, if they can, and leave their communities.
“All these people taken out in boats, they have a second problem: They have no insurance,” said Robert Hunter, director of insurance at the Consumer Federation of America, who used to run a federal flood insurance program.
Hunter estimates total out-of-pocket costs for flooded homeowners could reach $28 billion, the largest in U.S. history.
He expects flood damage alone from the storm to cost at least $35 billion, about what Katrina cost. But in that 2005 hurricane, about half of flooded homes were covered by flood insurance.
With Harvey, only two of 10 homeowners have coverage, Hunter estimates.
Homeowners insurance typically covers just damage from winds, not floods. For that, you need separate coverage from the federally run National Flood Insurance Program. The insurance must be bought by homeowners with federally-backed mortgages living in the most vulnerable areas, called Special Flood Hazard Zones.
People in those areas and near them have complained for years the premiums are too high, though they would be much higher still if not subsidized by the federal government.
Much of the Houston area falls outside those most vulnerable zones and many homeowners who aren’t forced to have coverage have decided to do without. Now they are stuck because much of the damage in the nation’s fourth largest city won’t be covered by their homeowners insurance.
Unlike Corpus Christi and Rockport, much of the Houston area was damaged by flooding, not winds.
About 1.2 million properties in the Houston-Sugarland-Baytown area are at high/moderate risk of flooding, but are not in a designated flood zone requiring insurance, research firm CoreLogic estimates. That’s roughly half of all properties – residential and commercial – in that area.
Hunter said homeowners without flood insurance can possibly apply for federal disaster relief benefits, but those come in the form of low interest loans, a burden for those already struggling with too much debt.
Homeowners with water damage can get paid through their homeowners insurance, but only if wind blows out a window or sends a roof aloft first, allowing the water in. If the water rushes through the floorboard or walls, you’re not covered.
Harvey has dumped more than 30 inches of rain, and rivers are expected to crest at record levels.