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USA - Closing the insurance coverage gap in risky coastal areas

The good news is, there are options for homeowners struggling to find satisfactory insurance. The National Flood Insurance Program (NFIP) offers flood insurance for those who live in participating communities. However, these NFIP policies typically only cover up to $250,000 in damages for most residential properties. Private insurers, on the other hand, are beginning to offer more comprehensive coverage options for coastal areas, but these policies are often more expensive than traditional policies.

With climate change intensifying and coastal areas becoming increasingly affected, how will people in those areas secure insurance coverage?

The lack of robust coverage options in coastal regions is a result of many insurers leaving these areas due to the high risks involved.

The coastal insurance landscape

There has been a significant exodus of insurers and reinsurers from the market as a result of increasingly costly catastrophic climate events. Consequently, many homeowners are unable to obtain suitable insurance coverage.

In Florida, the problem is especially pronounced. When Hurricane Ian hit the Sunshine State in September 2022, the Florida insurance market was already in a state of crisis. The damage caused by this Category 4 storm is estimated to be as high as $65 billion. Aside from Hurricane Katrina, it was the second most expensive natural disaster in U.S. history.

It’s estimated that just 18% of Floridians have flood insurance in a state that’s one of the most vulnerable to disastrous flooding.

The Florida Insurance Department has been working to mitigate the coverage gap. Insurers have been encouraged to offer more policies in coastal areas, and new programs have been developed to help homeowners obtain coverage. Despite these efforts, many Florida homeowners are still underserved. In 2017, nearly one-third of Florida homeowners were underinsured or had no insurance. This number is expected to grow as sea levels rise and risk-averse insurers exit the market.

The good news is that there are options for homeowners struggling to find satisfactory coverage. The National Flood Insurance Program (NFIP) offers flood insurance for those who live in participating communities, and private insurers are beginning to offer policies that cover wind damage from hurricanes.

However, these NFIP policies typically only cover up to $250,000 in damages for most residential properties. Private insurers, on the other hand, are beginning to offer more comprehensive coverage options for coastal areas, but these policies are often more expensive than traditional policies. Therefore, it’s important for homeowners to weigh the cost of coverage against the damages that might be sustained in the event of a natural disaster.

What is the coverage gap?

As coastal areas continue to experience more frequent and intense storms, the issue of insurance coverage for these regions has become critical. Unfortunately, many insurers are reluctant to provide coverage in these areas due to the risks involved. This leaves many homeowners and business owners without sufficient protection against potential damages.

The good news is, several options are available for those seeking insurance coverage for their coastal property. It is essential, however, to understand the different types of coverage available and what each covers before deciding.

Some insurance policies will cover damage caused by storms, but exclude flooding. Others may cover flooding, but exclude storm surges. It is imperative to understand the difference between these two types of coverage to ensure you are well protected.

Several government-sponsored programs provide some coverage for coastal properties, but these typically only cover a portion of the damages sustained.

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