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Cliston Brown


(847) 553-3671





October 30, 2012

Flood Insurance: What Consumers Need To Know

CHICAGO—Hurricane Sandy has created massive flooding, and more flooding is imminent in the coming days. As remnants of the storm affect many states, residents first and foremost should continue to heed the warnings issued by local officials. Once the storm subsides, there is much that can be done to make the recovery process smoother and, once it is safe, to minimize further damage to property. The Property Casualty Insurers Association of America (PCI) will be providing ongoing information regarding flood insurance and recovery suggestions as the storm’s damages become clear.


A standard homeowners insurance policy provides financial protection against disasters by insuring the home itself and your personal property. Homeowners insurance is a package policy that covers both damage to property and the homeowners liability or legal responsibility for any injuries and damage to property caused on the premises. While damage caused by most disasters is covered, there are a few exceptions including damage caused by a flood. This must be bought as a separate policy.

The National Flood Insurance Program (NFIP) is the primary source for flood insurance in the U.S. The often catastrophic nature of flooding has kept most insurers from writing flood coverage. The NFIP was established by Congress in 1968, in response to the rising cost of taxpayer funded disaster relief for flood victims and the increasing amount of damage caused by floods. The Mitigation Division, a component of the Federal Emergency Management Agency (FEMA), manages the NFIP, and oversees the floodplain management and mapping components of the program. Nearly 20,000 communities across the United States and its territories participate in the NFIP by adopting and enforcing floodplain management ordinances to reduce future flood damage. In exchange, the NFIP makes federally backed flood insurance available to homeowners, renters and business owners in these communities. The “Write-Your-Own” (WYO) program was set up by FEMA to allow private insurers through their agents to write flood insurance policies. WYO insurers write the majority of the federally backed policies in the NFIP.


·         Flood insurance covers direct physical losses by flood and losses resulting from flood-related erosion caused by waves or currents of water exceeding anticipated cyclical levels and accompanied by a severe storm, flash flood, abnormal tide surge, or a similar situation which results in flooding.

·         The standard flood policy for homeowners covers structural damage, your air conditioner, furnace, water heater and cleanup associated with a flood. In addition, you can purchase coverage for the contents of your home as part of the flood policy.

·         Buildings are covered for replacement cost but coverage for personal possessions is available on an actual cash value basis only. Coverage for the contents of basements is limited and usually only covers a home's foundation elements and equipment that is necessary to support the structure (for example: furnace, water heaters, circuit breakers, etc.).

·         There is a 30-day waiting period before the coverage becomes effective.


Federal Disaster Assistance may be available in the form of grants and loans if a flood has been declared a federal disaster. People who receive Federal Disaster Assistance for a flooded building will need to obtain flood insurance, which is one of the requirements for federal grants and low-cost loans. They will also need to maintain the flood insurance for the life of the loan.

PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $180 billion in annual premium, 39.2 percent of the nation’s property casualty insurance. Member companies write 45.5 percent of the U.S. automobile insurance market, 32.0 percent of the homeowners market, 37.3 percent of the commercial property and liability market, and 40.6 percent of the private workers compensation market.