For 60 years the warehouse along Wellington Avenue in Cranston never flooded. So when Kate Smith purchased the building about eight years ago as the headquarters for her KalaStyle soap business, flood insurance never crossed her mind. And when she took out a small loan against the building along the Pawtucket River, the bank never demanded she secure a flood policy.
“It wasn’t even on our radar,” Smith said.
That all changed in March 2010 when record amounts of rainfall swelled the Pawtuxet River and the water came up over the banks, across the road, through the parking lot and straight into KalaStyle’s warehouse, wreaking $91,000 in damage to the building and destroying $243,000 in inventory.
Today, Smith counts herself among the ranks of Rhode Island businesses and homeowners carrying flood insurance, a number that has jumped during the past year, according to the Federal Emergency Management Agency, which manages the National Flood Insurance Program, the country’s sole flood insurer.
In Rhode Island, the program held 15,903 policies last year, up by 3.7 percent – or 572 properties – from 2009. The number of policies has not risen that steeply since 2006, when policies jumped by 18.5 percent after significant floods in 2005. And the rise between 2009 and 2010 was above the yearly average increase of 2.78 percent. Last year, the program also counted more insurance policies in total since its inception in 1978. The policies cover $3.8 billion in property, FEMA says.
Still, insurance agents say that persuading businesses and homeowners to purchase flood insurance remains a challenge, even after the devastating March 2010 floods.
“At the end of the day it is heartening that we have seen a small uptick,” said Frank O’Brien, the Boston-based vice president for the Property Casualty Insurers Association of America. “But there is that barrier both physical and financial that people have when it comes to buying a flood-insurance policy and that continues.”
People who buy a home with a federally backed mortgage must secure flood insurance if their building falls within a federal flood zone. But for the rest of the population flood insurance is optional.
Nationally, the average claim paid under the National Flood Insurance Program reached $46,410 in May 2010, dropping to $11,099 in December.
“I think like many disasters, we all have that sense of complicity,” said Katharine Bishop, vice president at E.F. Bishop Agency Inc. in Providence. “You may have an immediate bout of anxiety over it but that wanes quite rapidly.”
For homeowners, the National Flood Insurance Program policy covers $250,000 in building damages and $100,000 of contents coverage. Businesses can be insured for up to $500,000 of building coverage and up to $500,000 in contents.
But Smith said the upfront cost of the policy can prove a burden on businesses, especially ones picking up after a disaster.
“It was like here I was, do you make payroll or did you get flood insurance?” Smith said.
For the first three months after the flood, Smith chose payroll. It was not until July that she felt secure enough to visit her insurance agent. She was nudged, in part, by officials at the U.S. Small Business Administration. They told her that she could not receive the agency’s disaster-assistance loans without first securing flood insurance.
But then Smith had another problem: Congress. Political strife over the money-losing National Flood Insurance Program has left it in a purgatory of sorts, with Congress reauthorizing the program in spurts.
In 2010, lawmakers let the program expire for a total of 53 days spread throughout the year, according to the insurance association. Home and business owners that tried to secure policies on those days could not. And existing policyholders could not renew their policies.
“I had an excellent lesson on flood insurance,” Smith said, adding that she never realized that the federal government was the sole provider of insurance for flooding caused by natural disasters in the nation.
Across the country, the National Flood Insurance Program counted about 5.7 million policies in 2009, the most recent year of data available. Agents say persuading many home and business owners to buy into the program is akin to pulling teeth.
“People tend to downplay the risk of a flood,” said John O’Rourke, a partner at John O’Rourke Insurance Agency in Cranston.
O’Rourke pointed to one recent homebuyer who purchased a home without relying on a mortgage. With no requirement that he purchase flood insurance, the new homebuyer passed on the policy. The kicker? The home was flooded during the March 2010 storms.
Homeowners especially tend not to understand flood insurance, O’Rourke said. Many fail to realize standard homeowner policies do not cover flooding, whether it’s from a nearby river or runoff from stormwater. Some are under the misconception that their property must fall within a federally designated flood zone to qualify for flood insurance.
Nor, agents say, does the media help matters. Reporters and government officials routinely portray intense storms as occurring only once in 100 or 500 years, leading people to believe that once a storm happens, the next is decades away.
Not true, say insurance agents and meteorologists. Yes, mathematically there is a one-in-100 chance of a particularly intense storm occurring but that chance is constant across time. In 2010 alone, Rhode Island experienced at least two storms described as one-in-100-year events.
But Rhode Islanders are sometimes just stubborn, especially compared with people in the Midwest who experience flooding on a regular basis.
“You go to other areas and people won’t think twice about buying flood insurance,” O’Brien said. •
