Millions of US Homeowners May Face Insurance Claim Rejections Following Hurricanes Helene and Milton Due to Lack of Flood Coverage

 

As U.S. residents begin filing insurance claims in the aftermath of Hurricanes Helene and Milton, many homeowners may face denials, especially for flood-related damages. A significant gap in the U.S. home insurance market is that flood insurance is not included in standard home policies, which typically cover wind damage from hurricanes but exclude flooding. Homeowners must purchase flood insurance separately, and many have not.

In some of the areas hardest hit by Hurricane Helene, less than 1% of homes were covered by flood insurance. For example, in Buncombe County, North Carolina, where Asheville is located, only 0.9% of homes had flood insurance at the time of the storm, according to the Insurance Information Institute.

In Florida, which suffered from Hurricane Milton shortly after Helene, the rate of flood insurance coverage is somewhat higher but still alarmingly low. Sarasota County, directly impacted by Milton, had only 23% of its residents insured against flooding.

According to the Federal Emergency Management Agency (FEMA), even a small amount of floodwater can result in significant financial loss, with one inch of water causing up to $25,000 in damages. Despite the risks, only about 6% of U.S. homes are covered by flood insurance.

Most of those insured have policies through the National Flood Insurance Program (NFIP), a government initiative established in the 1960s when private flood insurance options were scarce. While some private companies now offer flood insurance, NFIP still covers the majority of policyholders.

Experts say that many homeowners are unaware that standard home insurance does not cover flood damage. Mark Friedlander, from the Insurance Information Institute, explained that many claims filed after Hurricane Helene would likely be rejected, as they involve flood damage, not wind damage, which is typically covered.

Friedlander also noted that people tend to underestimate the risk of flooding, often opting out of purchasing flood insurance to save money. In the U.S., flood insurance is only mandatory for homeowners in FEMA-designated high-risk flood zones with federally backed mortgages. However, flooding can occur outside of these zones, as evidenced by the fact that 40% of NFIP claims come from low- or moderate-risk areas.

In comparison, countries like Spain and France include flood coverage in their standard home insurance policies, which is not the case in the U.S. Carolyn Kousky of the Environmental Defense Fund pointed out that including flood insurance in U.S. policies would be complex due to the varying income levels and risks faced by different regions.

During Hurricane Ian in 2022, uninsured flood damage accounted for a quarter of the total losses, costing between $10 billion and $17 billion, according to CoreLogic. Despite the devastation, the number of Floridians with flood insurance rose only slightly, from 19% to 20%.

Rising home insurance premiums are further complicating the situation, especially in Florida, where homeowners are already struggling with high insurance costs. Premiums in some areas, such as the Florida Keys, reach nearly $7,000 per year, compared to the national average of $1,915.

Many national insurance companies have stopped offering policies in Florida or have left the state entirely due to the increasing risks posed by hurricanes, rising construction costs, and frequent litigation. Since 2003, 41 Florida-based insurance companies have gone bankrupt or failed.

As climate change continues to exacerbate the frequency and severity of natural disasters, homeowners across the U.S. face growing financial risks. The situation is not limited to Florida—insurance companies have also pulled out of fire-prone areas in California, leaving residents vulnerable to massive out-of-pocket costs if their homes are destroyed.

Flood risk, in particular, has distorted the housing market, with homes often overvalued due to unaccounted-for flood hazards. The First Street Foundation estimates this misvaluation has impacted the market by at least $121 billion.

"We're in an era of increasing risk," said Kousky. "It's becoming harder for people to understand and prepare for the financial impacts of these disasters."