It’s hurricane season and industry experts are calling for another active year. The number and severity of storms continue to grow year after year, so it is in lenders’ and servicers’ best interest to ensure their customers understand how to protect themselves and their homes from flood damage.
It’s not just an issue for lenders and servicers, either. Disaster preparedness should be top-of-mind for investors as they manage their flood portfolios, which could include properties that span multiple flood hazard zones.
I’ve heard my fair share of flood myths in my 29+ years in the flood industry. Here are a few pervasive ones that stand out that lenders, servicers and investors should be privy to.
Myth 1: “Our area isn’t prone to flooding, so I don’t need to worry about flood insurance.”
There are many different scenarios that can cause flooding to a structure. A landslide could occur. A dam or levee miles away could burst or overflow. A neighborhoods’ drainage system could become blocked. That’s just a few. There are so many more possibilities.
Geography and whether your properties are in a special flood hazard area (SFHA) should not be the sole factors in determining if flood insurance is needed. In fact, more than 25% of the National Flood Insurance Program’s (NFIP) claims come from property owners outside of high-risk areas, with these individuals receiving one-third of disaster assistance for flooding.
If cost is a concern, the NFIP has preferred risk policies specifically designed for residential properties in low-to-moderate-risk flood zones, which are available at a lower rate than those for properties located in a SFHA.
Myth 2: The previous homeowner didn’t need flood insurance, so I won’t need it either
New flood maps are typically issued twice monthly, with anywhere from five to 10 counties receiving mapping revisions at a time. This means a property that didn’t need flood insurance at the beginning of the month could be mapped into a flood zone toward the end of the month, necessitating flood insurance for the property.
Why do flood zones change? There could be new development in the community. Better scientific data or better topographic contour data (i.e., changes in hydrology) could have become available. These are just a few contributing factors.
Constantly changing flood zones can be a challenge to keep up with. If you want to ensure that all of your properties are insured in case of flooding, it is critical to keep tabs on map changes affecting your portfolio. Check with your flood provider to see if they have automated reporting to notify you of any flood map changes on an ongoing basis.
Myth 3: I’m not in a flood zone, so I can’t buy a flood insurance policy
The NFIP was created in 1968 to provide flood insurance to people who live in areas with the greatest risk of flooding, otherwise known as SFHAs, the “100-year floodplain” or the “regulatory floodplain.”
Most communities across the U.S. – more than 22,000 of them – participate in the NFIP. Therefore, as long as the communities where your properties are located participate in the NFIP, any homeowner can purchase federal flood insurance. In the rare instance that a specific community does not participate in the program, a private flood insurance policy can be acquired.
Regardless of whether or not you have properties in a SFHA, from a cost/benefit analysis, some level of protection pays for itself in the case of a flood emergency – FEMA estimates that just one inch of water can cause $25,000 in damage to a home.
As FEMA continues to rezone flood areas on an ongoing basis, it is important to understand the risks that may be hiding in plain sight in both your and your clients’ portfolios.
Myths, especially the commonly held ones like the three outlined here, hold a lot of people in our industry back from taking proper precautions to mitigating flood risks. The best way to protect yourself is to work with the right flood partner — one who can keep you up to date with these changes. That way you can stop relying on myths and start protecting your portfolio with confidence.
Natascha DeVries has over 29 years of experience at ServiceLink National Flood. During her tenure, she has developed and managed the customer service department and now, currently manages the account management team as vice president. Drawing from her extensive leadership experience, DeVries oversees all tier one lender integrations, contract negotiations, requests for proposals, vendor due diligence documents, scorecards, escalations and client meetings among other duties. She maintains a membership to the National Flood Association.
