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The Cost of Flooding – Why Pennsylvania Residents Can’t Afford to Skip Flood Insurance

Flood damage is one of the most expensive natural disasters. It can cost billions annually, and future costs are expected to rise as climate change raises sea levels and intensifies inland flooding. Many mortgage lenders require homeowners to have flood insurance as a loan condition. Some ways to help offset the cost include choosing a higher deductible and obtaining an Elevation Certificate.

Cost of Repairs

Flooding is a costly natural disaster that can damage homes and businesses, strain local infrastructure, and create serious financial losses for families and communities. It’s also the country’s most common and costly natural disaster, and as climate change continues to heat the planet, flooding is expected to become more frequent and severe. A recent study estimates that unpriced flood costs — the difference between current market values of properties and the estimated cost to replace them in future climate states with consideration for sea-level rise and precipitation changes – could range from $260 billion to $420 billion in 2040. This estimate includes costs from uninsured flood damages, unpriced flood insurance premiums, and the value of property lost due to disruption, reconstruction, and repair. The most significant cost of flood damage is the loss of business productivity. The researchers behind the study found that in 2022, businesses would spend $13.5 billion on repairs or replacements due to flood damage and lose 3.1 million days of work. This cost affects not only the companies themselves but also the cities and states that rely on tax revenue from those companies. For homeowners, purchasing a flood insurance policy in PA is the most important step in protecting their homes from flood damage. This can be done through the NFIP or a private insurance company that isn’t regulated by the NFIP but has been granted permission to sell surplus line flood policies in Pennsylvania. However, selecting private insurance companies over the National Flood Insurance Program (NFIP) can offer policyholders more flexibility in tailoring their coverage to individual needs and property-specific risks. Additionally, private insurers may provide faster claims processing and superior customer service, enhancing the overall experience for those seeking flood insurance.

Cost of Replacements

If a home has been affected by flooding, it will likely need to be replaced with water-resistant materials that withstand the elements. This can be expensive, especially if structural damage has been caused. Water damage can also be difficult to clean and lead to mold growth. A new study has shown that rising global temperatures are causing more frequent and severe flooding. The study found that increasing precipitation has contributed to $75 billion in financial losses due to flooding. Most assume homeowners insurance covers flood damage, but this is sometimes true. Most mortgage lenders require that owners carry flood insurance if a property is in a high-risk area. You can check your risk level by looking at FEMA’s flood maps or asking your lender. Those who live in high-risk areas can also purchase private flood coverage. However, you should be aware that mortgage lenders may be less willing to work with surplus line insurers, and those policies are not backed by the National Flood Insurance Program Guaranty Fund (similar to FDIC insurance for bank accounts). Additionally, you cannot use certain hazard mitigation grant programs available through NFIP. If you decide to pursue a personal policy, ensure it is offered by an insurer licensed in Pennsylvania.

Cost of Damaged Property

Flooding can damage many items in your home, such as furniture, electronics and appliances, clothes and linens, tools, books, and records. The amount of damage varies depending on the water depth and how long the items are submerged. For example, a pipe that bursts in your kitchen will likely cost much more to repair than a broken window or roof. According to the National Flood Insurance Program, one foot of water can cause up to $29,000 in damage to a 1,000-square-foot home. Unfortunately, most homeowners’ insurance policies do not cover flood damage. It would help to have a separate flood policy to protect your valuables and personal belongings.

If you’re considering purchasing a property at risk for flooding, ask your mortgage lender, local officials or insurance professional about its history of floods. Also, consider using the map service center to check whether your property is in a special flood hazard area. If you’re in a high-risk flood zone, your mortgage lender will require you to have flood insurance. However, buying a Preferred Risk Policy can still get a flood insurance policy at a lower cost if you live in a moderate-to-low-risk area. These policies provide building and content coverage for homes in these areas. They also offer discounts to owners who implement flood safeguards like installing flood openings and elevating machinery and equipment such as water heaters and central air conditioning units.

Cost of Lost Income

For homeowners, the most devastating aspect of flooding is the loss of income. Many households lose the ability to earn revenue by repairing or rebuilding their homes, and they may also be forced to miss work during clean-up and recovery efforts. This loss of income is exacerbated by the fact that homeowner’s insurance does not cover most flood losses. Instead, homeowners must rely on government assistance to recover from flood damage.
In addition, some families will have to sell their homes if they cannot afford to pay for the costs associated with repairing and replacing damaged items. This can have a direct impact on household wealth and stability, and it can lead to an overall worse economic outcome for affected communities. These findings highlight the need to understand better and quantify the financial costs of flooding, especially household income. While the microeconomic literature on estimating household costs of natural disasters has been growing, there still needs to be more published research on this topic using modern nonmarket valuation techniques. This study addresses this gap, examining the cost of flood damage to households’ largest asset, their home, and comparing that cost across income groups. Using detailed, household-level survey data to estimate unpriced flood costs and weighting those costs by census estimates of income distribution and poverty status, the study shows that expected annual monetary damage from flooding is higher for poorer households than for wealthier ones.

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