Sunday, June 25, 2017
Warnings on flood insurance
First a little background. If you have flood insurance, you are not paying the market rate. The government subsidizes a large portion of the cost. That's been going on for many years. If they did not, a lot of waterfront development would be financially impossible.
Over the weekend I had long talk with someone who'd spent decades in the insurance industry. There is real uncertainty about the survival of the current system. The insurance industry hates uncertainty. Attempts were made pass on the real costs to the property owner. I remember a few years ago when I was in Florida there was a huge outcry from panicked property owners. The government backed off.
That does not mean the problem went away. We've been somewhat lucky in recent years in that not many hurricanes made landfall in the continental US. One rough storm season could send the insurance industry into total disarray. Someone has to pay the bills. If the government does not, the property owner will.
Premiums could skyrocket. If you have a mortgage on your property, the bank will insist on flood insurance. Your options will be limited. You could prepare to pay a lot more for insurance or lose the place to the bank. If there is no mortgage, you could either pay, take your chances, or start saving to cover flood damage repairs.
A sudden change in the insurance market would decimate the real estate market. Imagine everyone unable to afford their property so they put it on the market at the same time. Places that currently have equity would suddenly become upside down and be worth less than the money owned on them.
The flood insurance crisis is coming and will be serious. The government no longer wants to accept the huge liabilities and the industry certainly won't eat the cost. How it shakes out is anybody's guess.
As for myself, even though I'm on a lake, my house sits over eighty feet above the water level. Flood insurance is not needed. There is an uninsured shed down by the water, but if that washed away I'd be out less than a thousand dollars.
Property insurance is boring, until it suddenly isn't.