New CoreLogic report finds homes inside and outside Special Flood Hazard Areas have billions of dollars in uninsured damage exposure, which threatens mortgages and homeownership
CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled solutions provider, today released its Finding Opportunities in Insuring Flood report, which examines vital opportunities for private insurers to protect homeowners from flood risk inside and outside of the National Flood Insurance Program (NFIP) Special Flood Hazard Areas (SFHA). In this report, CoreLogic examines potential underinsurance issues in two areas of the United States with exposure to flooding: The Atlantic and Gulf Coast regions with hurricane-related storm surge risk and the Mississippi River basin with inland flooding risk.
Data analysis from the report highlights the need for insurers to understand the tools available to granularly identify flood risk and up-to-date reconstruction cost value (RCV) in order to better distribute risk, understand potential underinsurance exposure and ensure policyholders can fully recover if faced with flood loss.
“After Hurricane Harvey devastated the Gulf Coast in 2017, CoreLogic estimated that 70% of the flood damage was uninsured,” said Dr. Howard Botts, executive and chief scientist at CoreLogic. “Since flood is not part of a standard homeowners policy, identifying these key areas of flood underinsurance can enable insurers to offer policies that help homeowners recover quickly and keep communities strong and thriving after a disaster.”
CoreLogic analysis has shown that not only are uninsured damages from catastrophes devastating to homeowners and insurance carriers but can threaten the overall mortgage industry.
“If a hurricane causes significant storm surge damage during a time when mortgage delinquencies are already high, this could result in additional issues for lenders and insurers – and ultimately, delay economic recovery for impacted communities,” said Dr. Frank Nothaft, chief economist at CoreLogic. “For example, our analysis shows that three months after 2018’s Hurricane Florence made landfall, serious delinquency rates had doubled in major metros affected by the storm.”
Underinsurance figures are based on an analysis of increased reconstruction costs over a rolling two-year period for homes that are at High to Extreme risk of being destroyed or even partially destroyed in the event of a flooding disaster. The estimates are also based on the assumption that a Category 3 to 5 hurricane damages an estimated 30% of at-risk homes’ RCVs, and inland flooding damages 30% of at-risk homes’ RCVs. Highlights include:
Storm Surge Along Atlantic and Gulf Coast of US:
- Outside the SFHA: While the highest risk exposure along the Atlantic and Gulf coast exists in SFHAs which has mandatory flood insurance requirements for homes with mortgages, many at-risk homes are outside SFHAs. CoreLogic data shows the potential uninsured damage exposure to homes impacted by a Category 3 to 5 hurricane is nearly $218 billion in High to Extreme storm surge risk areas.
- Within the SFHA: NFIP limits coverage up to a maximum of $250,000 and many NFIP-mandated homes have RCVs that far exceed this. CoreLogic data shows homes inside the SFHA and at High to Extreme risk of storm surge damage from a Category 3 to 5 storm have an uninsured exposure of $5.2 billion after NFIP coverage.
Inland Flooding Along the Mississippi River:
- Outside the SFHA: While the highest risk inland flood exposure exists in an SFHA, many at-risk homes are outside SFHAs. CoreLogic data shows homes in High to Extreme risk areas have potential uninsured inland flood damage exposure of $31 billion.
- Within the SFHA: Given many homes inside the SFHA have RCVs that far exceed the NFIP’s maximum coverage limit, homes with High to Extreme of inland flood risk have an uninsured exposure of $70 million after NFIP coverage.
While there are more than 5 million NFIP policies in force currently, that leaves considerable uninsured flood loss exposure.
CoreLogic offers high-resolution view of flood hazard and vulnerability consistent with the latest science for more realistic risk differentiation. A total component methodology for RCV applies current, localized labor and building materials and monitors property improvements to create a reconstruction cost estimate that is unique to the specific home at the time of the estimate. Leveraging this proprietary model, CoreLogic ran very high to extreme risk zip codes within areas of the US vulnerable to storm surge and inland flooding through the residential estimating tool to calculate the localized changes in reconstruction costs from 2018 through today. The numbers and charts reflected in this report demonstrate the importance of frequent recalculation of reconstruction costs (or coverage A) versus using a simple inflation factor—especially in areas at very high to extreme risk of flooding.
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