Sonoma County experienced some of the worst flooding in years this past winter, and some business owners are still recovering from losses. From January and February, the county sustained approximately $15.4 million in damages.

With forecasts of increased storm activity, and the pending expiration of the federal government’s program which provides most of the nation’s flood coverage, those thinking ahead are thinking about flood insurance.

Adjusters say, ‘No, no, no’

“We experienced some big losses just in January, and a lot of people weren’t covered, or were under covered,” said Colin Smith, an agent for Northwest Insurance Agency, which has an office in Santa Rosa.

The reason for that is, people think they don’t need it, are willing to take the risk, and/or find the insurance too expensive.

Roger Hicks, co-owner of The Village Inn in Monte Rio on the Russian River in Sonoma County, was one of those.

When Hicks and his partner bought the Inn in 2015, they didn’t want to pay for the insurance, on top of all their other business expenses, but it was required by the bank that held the loan, as it sometimes is.

The Inn is in the highest rated flood zone for the area — this year it has flooded five times. In 2015, the cost to insure the Inn for flood damage was $6,600 per year. The next year rates doubled to $12,000, and in 2017 it was more than $17,000.

Hicks is insured under the National Flood Insurance Program, which provides almost all the flood insurance in the country, Smith said.

The program offers basic coverage, only the building and its contents are covered. There is also a wait period of 30 days before it kicks in.

The Inn suffered about $50,000 in damage in last winter’s storms, including damage to the wiring, plumbing, and buckling of floor tiles.

Is Hicks glad he had the insurance? Only mildly.

“When they assessed the damage, they (adjusters) said, ‘No, no, no’ to everything. The insurance company fought us every step of the way and made it extremely difficult (to get paid),” he said.

Among other things, insurance assessors claimed damage to the building’s foundation was earthquake-related, and not caused by the flooding, he said.

Six months after filing a claim, Hicks said the insurance company did pay out a small sum.

In a high risk flood zone a building might typically cost $5,000–$20,000 to insure, depending on its location in relation to sea level and nearby water, and amount of coverage requested, Smith said.

“In a low risk flood area, the same buildings cost $600 to insure … people in Petaluma and Napa generally will experience lower flood rates than say people in Monte Rio, however there are definitely areas of Napa and Petaluma that may geographically fall in a flood zone and could experience the higher rates,” he said.

Covered vs. not covered

Under the NFIP, protections for small businesses losses such as business interruption and significant disaster preparation, aren’t covered.

Government insurance also takes longer for a payout on a claim than private insurance, said Casey Soares, senior vice president for property specialist Woodruff-Sawyer & Company.

Although some smaller companies still offer private insurance, most got out of the flood insurance business years ago, not wanting to take big risks with things like hurricanes.

About 33 counties across the U.S., mostly in the southeast, suffer the majority of flood-related losses. Insurers would like to see more people have flood insurance, to fully subsidize those risky areas, Smith said.

But that’s not happening.

One problem is it’s not mandatory to purchase the insurance.

In New Orleans, which was hit in 2005 by Katrina that caused an estimated $200 billion in damage, only about half of the people there have insurance, Northwest’s Smith said.

Only 17 percent of homeowners in the eight counties most directly affected by Harvey have flood insurance policies, according to a Washington Post analysis of Federal Emergency Management Agency data.

More risk than premiums for government fund

The NFIP, which is overseen by FEMA, currently faces about $25 billion in debt, and is estimated to get hit with up to $10 billion more from Harvey, according to catastrophe modeling firm Risk Management Solutions Inc.

Damage from Hurricane Irma is estimated to cost $50 billion, according to Bloomberg, a financial software, data and media company.

“Private insurers got out for the very reason the NFIP is in such overwhelming debt. The loss experience is too great,” Woodruff-Sawyer’s Soares said.

“You can’t pay us enough because we see the way FEMA runs their program and they’re way upside down,” Smith said. “They are not pricing the people in the high flood zones appropriately,”

Each year the NFIP is short by about $1.6 billion.

“And that’s on a conservative year. That’s not when we count situations like Harvey and Irma,” Smith said.

Program changes?

The NFIP was primarily designed for homeowners and has had few updates since the 1970s, and maximum payouts for damages haven’t risen since 1994, according to the Wall Street Journal, August 2017.

Funding for the program has to be approved by the government each year, and the program, which was last reformed in 2012, is set to expire Sept. 30, unless congress votes in a new plan.

Insurers say some form of new legislation authorizing the program will pass, and will include some changes. Insurance may be mandatory in flood zone areas and rates will likely go up.

As national rates increase, private insurers are again taking a look at offering that coverage, Smith said. And if private insurers get back into the game, those policy rates are likely to go down due to competition.

“We will likely see some private markets dip their toe in the water and test it and try to compete with the National Plan. We are now seeing players — like Lloyds of London — entertain that idea and they’ve said they’re thinking about jumping back in to more treacherous flood zone areas.”

“The senate bill will change the landscape going forward, it’s just a matter of what changes they make,” Soares said.

Smith agrees.

“I would advise businesses to keep it on their radar. I expect it to be shaken up. Keep your eyes and ears open and see what happens next,” he said. “There are a lot of people under covered by their flood insurance, and everything is changing so it’s a good time to start getting educated and reaching out to their brokers.”

Cynthia Sweeney covers health care, hospitality, residential real estate, education, employment and business insurance. Reach her at Cynthia.Sweeney@busjrnl.com or call 707-521-4259.