South Carolina is a state of dramatic contrast. From the tarpaper shacks of the Low Country to the elegant neighborhoods along Charleston’s Battery to the palatial seaside homes on Kiawah Island, you’ll find almost every type of structure imaginable in the Palmetto State.
A common theme underlies this diversity of housing: insuring those properties against flooding is no easy proposition—what with the state’s 187 miles of coastline, sub sea level exposure and misperceptions about the cost of the insurance relative to the value.
The challenge was driven home by heavy rainfall, partially fed by Hurricane Joaquin, as floodwaters did over $1 billion in damage across the state, from coastal Georgetown to Columbia in the Midlands. The National Weather Service says a record 14 inches of rain was dumped on South Carolina. The State's Emergency Management Division has
said that at least 11 dams have failed in South Carolina. As of October 8th, the South Carolina Emergency Management Division said more than 250 roads and at least 100 bridges remain closed across the state. How much insurance will compensate property owners remains to be seen.
Nationally, take-up of flood insurance is a mere 14% and the number of policies in force has steadily declined since 2009. Why is it so low for a peril that’s consistently making headlines? There are three main reasons, and they’re all related:
1. Misinformation. Many think their homeowners insurance covers flood, but it doesn’t. In fact, the Insurance Information Institute found homeowners in the South and Northeast—areas that experience the most flooding—were most likely to think home insurance pays for flood damage. We saw this play out after hurricane Sandy, when a survey revealed only about half of residents living within a block of a body of water had true flood insurance, either through NFIP or a handful of private carriers.
2. Short memories. “It won’t happen to me” is a familiar refrain. It doesn’t help that experts refer to the heavy autumn rains as a “1,000-year flood” The fact is, we’ve had 6 of those 1,000-year floods in the last 6 years!
3. Cost. If people believe they’ll never have a flood they question the cost. It doesn’t help the NFIP has raised premiums in an effort to pay down massive debt brought on by hurricane Katrina.
This rate manipulation is a Band-Aid, not an actuarially sound strategy. It introduces noise in the system and the average consumer is at a loss trying to make sense of it.
Despite reform efforts, fixing the NFIP is an uphill battle. The NFIP expires in mid-2017 unless lawmakers elect to renew it. If it is to survive another cycle, the NFIP will undoubtedly undergo more tinkering because lawmakers, consumers and the insurance industry want to see a commitment to stable, actuarially based pricing before they join any public-private partnership and assume a share of the risk.
The private market has much to contribute to the resolution of America’s flood protection gap. We can lead on this issue. We can help bring awareness to consumers. We have the capital, the tools and the expertise. Now is the time to ramp up flood underwriting based on our scientific models, maps and forecasts.
It may be too late for those with homes and business damaged by the rains of September and October 2015, but it’s just a matter of time before the waters rise again—certainly sooner than 1,000 years.
Category: Climate/natural disasters: Climate change, Disaster risk, Floods/storms, Resilience
Location: South Carolina, United States