P&C the November 2019 issue

Ready? Set. Flood.

Homeowners need mitigation before the storm, and insurance is willing to pay.
By Cheryl Arvidson

“If you’re on the East Coast of the United States and want to build something to last 100 years,” Lackey says, “you will be hit with a hurricane.”

Barely six months after construction was completed, on Oct. 10, 2018, Hurricane Michael, a Category 4 with 155-mph winds and a storm surge of 19 feet, made landfall in Mexico Beach.

The Sand Palace, as they called their home, was in the eye wall of Michael, the third strongest hurricane ever to hit the United States. It was pummeled for two to three hours by hurricane-level winds and storm surge, but it remained standing. Post-hurricane photos show it alone, relatively unscathed, amid piles of debris that once were multimillion-dollar homes. The house next door, built to code in 2016, was so badly damaged it had to be demolished. On the other side, neighbors lost their home when all four pilings elevating the structure failed simultaneously and the whole house crashed down.

“There were multiple multimillion-dollar homes on the beach, and all that is left are the patio paver driveways,” says Lackey, a radiologist from Cleveland, Tennessee.

Improved construction and other steps to mitigate damage are not as costly as rebuilding after a storm.

In one coastal Florida town, Hurricane Michael destroyed an estimated 70% of the homes that were not required to have flood insurance.

FEMA also is moving away from flood maps and implementing a new rating system next year that is intended to reflect the actual flood risk for individual properties.

The ground-floor parking area of the Sand Palace, including the elevator and a 16-foot concrete stairway up to the two habitable floors, was a total loss, with only the paver patio driveway left intact. There were cracks in some pilings and beams and some damage to the roof, but all of those were repairable. “I think if we had had standard construction we would have lost our house,” Lackey says.

The town’s building code required the house to be 20 feet above sea level; the Sand Castle was 24 feet above sea level, “which was pretty much close to where the water came,” Lackey says.

“I never really looked at the code. We relied heavily on our instincts. I did not read a single paragraph of the code. I looked at other properties, and I talked to my engineer.”

He credited his design decisions, which went beyond what local building codes required, with saving the house. For example, Lackey had the pilings sunk 28 feet into the ground, 10 feet deeper than code. He directed that some space be left between the concrete floor and the ground-level pilings. He had installed a standing, metal-sealed roof without an attached shade. And he had the exterior walls made a foot thick—two and a half inches of outer-insulated concrete foam, seven inches of poured concrete reinforced with rebar in the middle, and two and a half inches of insulated concrete on the inside.

Lackey says improved construction and other steps to mitigate damage are not as costly as one might assume, especially compared to the cost of rebuilding. “People should not think it is going to take forever or cost an arm or a leg,” he says. “It doesn’t. I estimate it cost us 10 or 15% more, and that may be high.”

If you’re on the East Coast of the United States and want to build something to last 100 years, you will be hit with a hurricane.
Lebron Lackey, coastal homeowner, Mexico Beach, Florida

Money for Mitigation

Hurricane Michael destroyed roughly 70% of the homes in Mexico Beach, and another 10% were severely damaged. Many of those structures were one-story cinder block homes built on concrete slabs in the 1950s. News reports said many of the town’s 1,200 residents lived there year-round and worked in seasonal jobs in bars and restaurants or on fishing boats.

The majority of those homes were not covered by flood insurance, either because of their age or due to Federal Emergency Management Agency maps, last revised in 2009, that placed them in a minimal-risk flood zone where purchase of flood insurance is optional, not required. An estimated 70% of the Mexico Beach homes that were not required to have flood insurance were destroyed by Michael’s storm surge. Current FEMA flood maps do not address storm surge risk, and FEMA itself has estimated that 40% of properties exposed to storm surge risk in coastal communities are not within a Special Flood Hazard Area, where flood insurance is required if the home has a federally insured mortgage.

Mexico Beach officials are now requiring homes in a wide area to be built to higher flood protection standards. FEMA also is moving away from flood maps and implementing a new rating system next year that is intended to reflect the actual flood risk for individual properties. That may increase the number of homeowners who purchase flood insurance to protect against future storms. But for those affected by Michael who had no flood insurance, there is little but a small federal disaster grant, which averages around $4,000, available to help with the damage. As a result, it is doubtful that many of those residents will be able to afford to rebuild.

As is the case in Mexico Beach, hurricanes or major storm events can inflict so much damage to so many properties that the communities in their path will be forever changed.

Tim Russell of The Russell Agency, in Fairfield, Connecticut, says Superstorm Sandy, which devastated much of the East Coast in October 2012, dramatically altered the Fairfield beachfront. “It used to be a lot of Cape Cod-style homes with basements,” Russell says. “The majority of them were torn down and replaced with homes elevated above base flood elevation. It really changed the face of the neighborhood for the better.”

In some cases, homes were so extensively damaged they had to be rebuilt under new, tougher construction standards. In other cases, Russell says, “people just sold their homes to builders as building lots.”

Russell, who primarily sells National Flood Insurance Program policies, says many homeowners don’t realize their flood insurance contains $1,000 in coverage for pre-storm mitigation efforts, such as acquiring sandbags or bringing in fill to create a berm around their home. The policies also carry another $1,000 to cover costs of moving contents out of harm’s way and into an enclosed building outside the flood area.

Marc Treacy, the managing director for flood insurance for Verisk Analytics, says many of the 22,000 communities participating in the NFIP program are adding stronger requirements to their building codes.

“I would really love to see building codes continue to improve and get more into flood mitigation,” Treacy says. “There are products out there that can help with individual property or business resilience or mitigation and different ways you can mitigate, but there is a cost to it. There is recognition from an insurance perspective that mitigation should be accounted for and credited for.”

There are products out there that can help with individual property or business resilience or mitigation and different ways you can mitigate, but there is a cost to it. There is recognition from an insurance perspective that mitigation should be accounted for and credited for.
Marc Treacy, managing director for flood insurance, Verisk Analytics

Flood is the most prevalent catastrophe in this country, resulting in estimated economic losses averaging $15 billion annually. Indications are that flood losses will only rise as a result of climate change and rapid development of areas exposed to severe weather.

In anticipation of more frequent and more severe weather events, communities across the country are taking mitigation steps before, not after, disaster strikes. According to a report earlier this year in Inside Climate News, hundreds of communities and 22 states have required new construction to be elevated higher than federal requirements in the areas with the greatest flood risk. The report said a growing number of cities and counties are extending new building-elevation standards to areas considered to be at a lower risk for floods.

Christopher Heidrick, of Heidrick & Company Insurance and Risk Management Services, in Sanibel, Florida, says he is seeing a lot of mitigation efforts by both homeowners and communities.

“It is going on, and we need more of it,” Heidrick says. “After Superstorm Sandy and after Hurricane Katrina, a lot of homes were substantially damaged, meaning more than 50% of the market value of the structure, and according to FEMA building requirements, those homes had to be rebuilt according to the most current requirements. That usually means putting a flat bottom on stilts or a home would need to be elevated even further.

“A lot of communities have also paid attention to improving levees and dikes that would mitigate losses from future events. But we could do better. We need to be proactive in assessing our risk and undertaking mitigation efforts before the storm occurs instead of making it part of the recovery effort.”

Timing can make a substantial difference. For example, Hurricane Harvey inundated Houston with 50 inches of rain over four days in August 2017. More than 150,000 homes were flooded, and most had no flood coverage. Subsequently, Houston put in new building construction requirements that a city study said would have spared 84% of those damaged homes.

The new Houston standards are estimated to add $11,000 to $32,000 to the cost of newly constructed homes. A 2,500-square-foot house that floods with just one inch of water is estimated to sustain $23,635 in damage to the structure and $3,172 in contents loss.

Repetitive Losses

In certain situations, mitigation can be pricey. Heidrick estimates that elevating a flat foundation home might cost $100,000, and the property owner would have to move out and live elsewhere while still paying the mortgage on the damaged home. The end result might be lower insurance rates, but “it is going to take a long time for the reduction in premiums to pay off for that investment, and it may not correlate to an increased property value for the home. I am not convinced that elevating a flat house will pay off in terms of property value.”

Currently, the National Flood Insurance Program does not exclude properties that suffer from repetitive losses, essentially giving homeowners the ability to rebuild in the same way for an unlimited number of losses and still qualify for federal flood coverage. Many of the properties suffering repetitive loss are also grandfathered into the program, which keeps their NFIP premiums low even if they have repeated claims.

Plus, he says, many people want to live in a ground-level home and thus don’t want to elevate it, even though they might be wiped out again in a future storm.

We need to be proactive in assessing our risk and undertaking mitigation efforts before the storm occurs instead of making it part of the recovery effort.
Christopher Heidrick, agency principal, Heidrick & Company Insurance and Risk Management Services

Over time, Heidrick says, “the market will probably take care of some of these things. If a house is flooding on a regular basis, no one wants to live like that. But I think probably some of those in a repetitive loss situation can’t access whatever resources are needed to fix those properties. For example, if you’re a shrimper in southern Louisiana, where are you going to go?”

FEMA has announced that Risk Rating 2.0, the revision in property flood risk classification now under way, will include some incentives for risk-reduction efforts. There are some mitigation actions that will result in lower NFIP premiums. Those include providing flood openings; elevating structures onto posts, piles and piers; and elevating machinery and equipment above the lowest floor.

Although “elevate, elevate, elevate” is the most common mitigation effort one hears about when discussing ways to avoid flood loss, Lackey says homeowners should look more closely at the sort of disasters their area is prone to in order to take steps that provide the best chance of surviving it.

“In some cases, the best mitigation might be to choose another location,” Lackey says. “My uncle says people keep asking him what they should do to build to avoid a catastrophe, and he says, ‘If I have one word, it is don’t.’I’m not quite at don’tyet, but if you are building in harm’s way and you know disasters are likely to hit, you need to get your head around how best to prepare your home for that disaster.

“We just need to think our way through it. Mexico Beach and the insurers of Mexico Beach paid a very dear price down there. It would be awful to not harvest that data, understand what happened, and build homes so they don’t do it again.”

Cheryl Arvidson

Contributing Writer

Read More

More in P&C

Private D&O Market Ripe for Opportunity
P&C Private D&O Market Ripe for Opportunity
Brokers play a critical role in helping clients understand the coverage and bene...
Sponsored By The Hartford
P&C Risk Assessments Are the Best Checkup
Are you adequately tracking the health of your cyber-security program?
Insuring Screams
P&C Insuring Screams
Now that it is finally October, we decided to tap into the spooky side of our in...
Flood: It's Not Just a Coastal Problem
P&C Flood: It's Not Just a Coastal Problem
Consumers, brokers and everyone else are desperate for transparency and clarity ...
Q&A with Austin Ledgerwood of Cover Genius
P&C Q&A with Austin Ledgerwood of Cover Genius
When people stop buying cars, they’ll still need insurance...
Show Me Your Playbook
P&C Show Me Your Playbook
Carriers want to know sports teams are making major efforts ...