Mid West flooding expected to cost $20bn but no impact on insurers

The economic cost of flooding in the Middle West in June and July has been estimated at up to $20 billion, but no material impact on the insurance industry is expected. Flood damage is excluded under standard homeowners’ policies, and although a growing number of private insurers have begun offering excess flood insurance above the limits provided by the National Flood Insurance Program (NFIP), less than 9% of residents in the high-risk areas in Iowa, Illinois, Indiana, Missouri and Wisconsin had bought even the NFIP coverage.

This figure comes from the Federal Emergency Management Agency (FEMA) which operates the NFIP. It also said that in low to moderate risk areas of these states, the insured proportion drops to under 1%. Those without insurance depend on interest free or low cost loans from the federal government, provided the community is formally declared a disaster area.

In Iowa, Governor Chet Culver has estimated the damage in his state alone at $10 billion, of which about $4 billion is losses for agriculture, and another $4 billion in damages to businesses. University of Iowa officials said their estimated cost for flood damage at the campus was expected to exceed $231 million.

The American Farm Bureau Federation said in June that crops had incurred more than $8 billion in estimated weather related damage during the first half of 2008, of which Iowa accounted for about half. There were also notable problems in at least a dozen other states ranging from the excessive wetness and flooding in Illinois to drought in California. This figure does not include other agricultural losses, such as livestock, infrastructure, building and equipment damage.

The Insurance Information Institute (III) made a country-wide estimate of 17% of US households with flood insurance on the basis of an independent survey of 1,000 people in May 2008. The III reported that in the north central states, where much of the summer 2008 flooding occurred, the proportion of people with flood insurance has increased from 9% in 2007 to 17%. In southern states, the number of homeowners with flood insurance is falling, the III found, with a reduction from 20% to the national average.