Of all the things financial advisors and their clients worry about in connection with investments, it’s hard to believe that one of the greatest potential wealth destroyers can be a natural phenomenon: rain.
Today’s unexpected and unusually heavy rainstorms are wreaking havoc on homes, leading to costly repairs and remediation efforts. Because flood and surface water damage is not covered by most homeowners and renters insurance policies, all too often families must tap — and deplete — their investment nest eggs to resume normal living.
Water and flooding damage are nothing new, of course, especially to those living near rivers in the Midwest and along the nation’s hurricane-hit East and Gulf Coasts. But today, in broad swaths of the country where flooding has historically been rare, people are experiencing the physical, emotional and financial pain that too often accompanies sudden, overwhelming downpours.
Flood insurance is an answer, of course, but the Insurance Information Institute estimates that only about 12% of American homeowners had such a policy in 2016, down from the 14% who had the coverage in 2015. The percentage of homeowners with flood insurance was highest in the South, at 14%, and lowest in the Midwest, where just 8% had flood insurance.
Flood insurance is available from the federally-backed National Flood Insurance Program (NFIP) and from some private insurers. NFIP policies typically can insure a residential building’s structural elements up to $250,000.
Flooding risks are great in dollar terms. Statistics from the Federal Emergency Management Agency show that just six inches of water damage causes a loss of $52,039 in an average-size home, while a foot of water costs $72,162 and a four-foot inundation results in a $103,355 loss.
No one, least of all clients, expects a financial advisor to be a flood insurance expert, but alerting clients to the need to protect themselves and their nest eggs from this all-too-real threat demonstrates your holistic approach to wealth management and your value as a trusted advisor.
To illustrate just how devastating rain-caused damage can be, consider this example: Jennifer and Richard Armstrong are an affluent couple who live in a large, one-level home in a suburb of Dallas. Since flooding there was rare, they never bought flood insurance.
Recently, a sudden storm dumped almost seven inches of rain in a few hours and debris clogged the drainage systems in front of their home, causing water to rise into their garage. At the same time, water flowed into their backyard from the yard of the house next door, where neighbors recently installed a pool that redirected drainage. As water flowed to the rear of the Armstrong home, it breached French doors and poured into the couple’s kitchen, where it damaged custom cabinetry and high-end appliances.
After ruining the contents of the garage and items in the adjacent mudroom/laundry room, damaging the washer and dryer, the rising water compromised the heating and air conditioning systems in the adjacent utility room. It also ruined imported rugs, wood flooring, baseboards in the rest of the house, as well as wainscoting and furniture in the dining room, and floor-to-ceiling built-in bookcases in the home office.
The damage total: $400,000 in home repairs, including mold remediation; $200,000 to replace and repair contents, and $50,000 for debris removal — or $650,000, none of which was covered by the Armstrong’s homeowners insurance due to the standard homeowners surface water exclusion.
Fortunately for the Armstrongs — and unfortunately for their financial advisor — they had assets earmarked for retirement they were able to tap. Would something similar happen if flooding or surface water damaged the home of one of your clients?
Flood insurance, especially policies from premium carriers that can be combined with existing coverage, can provide a level of protection that clients are likely to find appealing. It’s worth finding out more and alerting your clients to their possible liability.
Fran O’Brien is Division President, North America Personal Risk Services, Chubb. If you have any questions, she can be reached at AskFran@Chubb.com.